Vince McMahon scandals and retirement heighten WWE sale speculation

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

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World Wrestling Entertainment’s annual report for 2021 lists a risk factor specifically related to the aftermath of Vince McMahon’s retirement – an event that happened just last week.

“The unexpected loss of the services of Vincent K. McMahon could impair our ability to develop popular characters and creative storylines or could otherwise adversely affect our operating results,” WWE wrote in the company filing, dated of December 31. “The loss of Mr. McMahon due to unexpected retirement, disability, death or other unexpected termination for any reason could have a material adverse effect on our ability to create characters. popular and creative storylines or could otherwise adversely affect our results of operations.

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

The spike was driven by heightened investor sentiment that a sell-off is coming. Newly appointed co-CEO Nick Khan openly discussed the sale concept already this year, months before McMahon quit amid a Wall Street Journal investigation that uncovered payments to women who alleged sexual misconduct and infidelity. WWE has since confirmed $14.6 million in previously unrecorded expenses paid personally by McMahon.

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

Potential buyers

The timing of a deal could depend on WWE’s next U.S. television rights renewal, loosely scheduled for mid-2023. An acquirer may decide that it makes more sense to buy the business than to enter into a temporary rights agreement. Fox owns the rights to “Smackdown” and NBCUniversal owns the rights to “Raw”, both WWE TV properties. The agreements both end in the fourth quarter of 2024.

Speaking to Matthew Belloni of “The Town,” Khan pointed to Comcast’s NBCUniversal as a potential buyer. NBCUniversal’s Peacock currently holds exclusive live broadcast rights for WWE.

“If you look at what NBCU/Comcast lacks that they need, and I think that’s a factual statement, they don’t have the intellectual property that some other companies have. They certainly don’t have the property treasury Disney intellectual property, they shouldn’t either,” Khan said. “I think they look at us as an entity that has a treasure trove of intellectual property. Much of it has yet to be mined… Now it’s up to us to properly monetize it and show the community exactly what we have. “

Global media companies are looking for intellectual property that they can use as the basis for recurring TV series and movies and theme park attractions, for those who own them. WWE is also attractive as an acquisition because a media owner can sell real-time advertising on live programs and potentially allow audiences to pay for traditional pay-TV, a dwindling but lucrative revenue stream. WWE’s “Raw” is currently airing on USA Network, an NBCUniversal cable network. By comparison, the National Football League nearly doubled its projected TV revenue in its last rights renewal deal last year.

WWE has steadily increased its annual revenue over the past decade through its media deals and live events. It said on Monday second-quarter revenue was currently expected to be $328 million for the quarter, up 23% from a year ago, with operating profit around $70 million, a 52% increase over the previous year.

There aren’t many entertainment companies globally that come up for sale with an easily digestible price tag for many potential suitors. WWE is not engaged in sales talks, according to a person familiar with the matter. But McMahon’s retirement could open the floodgates to offers that may be too good for the company to turn down. WWE, whose shares have soared around 40% this year in contrast to broader stock declines, has a market valuation of around $5 billion. The stock closed more than 3% on Tuesday, after the Wall Street Journal reported that McMahon’s payments were under investigation by federal authorities.

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

A WWE spokesperson declined to comment.

Jump the gun?

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

While it’s hard to believe that Vince McMahon, still WWE’s largest shareholder, won’t be involved in major corporate decisions, Levesque, who has taken over creative control from McMahon, may have the opportunity. to refresh storylines and introduce new talent. McMahon, who turns 77 in August, no longer has an executive title in the company.

McMahon may also view selling now as an exit from weakness, which he may see as the antithesis of his public persona as someone always in charge.

“We suspect the street will interpret Mr. McMahon’s retirement as a precursor to a possible sale of WWE,” Citi analyst Jason Bazinet said in a note to clients. “We’re not sure that’s a reasonable conclusion since WWE will still be a controlled corporation with 100% of the Class B shares held by the McMahon family.”

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