WWE's New Board Order
The Road to TakeoutMania Starts Now
It’s only fitting WrestleMania will be in LA this year given the Hollywood (or Netflix documentary) storyline currently playing out at WWE, and the controversial return of embattled founder Vince McMahon in a Boardroom shakeup.
It’s a chaotic governance situation, but the wrestling business is one of the few places where chaos works, daresay thrives.
Let’s walk through this Governance Rumble which resulted in the “Controlling Shareholder” establishing a New Board Order and starting WWE on the road to TakeoutMania.
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Of the “Big 5” WWE tentpole events (Royal Rumble, WrestleMania, Money In The Bank, SummerSlam, and Survivor Series), January’s Royal Rumble is my favorite.
The countdown clock, the surprise entrants, the battle royal format, the in-ring chaos, the multiple storylines being simultaneously told, and the winner ultimately marking the start of a WrestleMania main event storyline.
I love it all despite it being - spoiler alert - pre-determined.
WWE (NYSE: WWE) is providing the following update regarding the composition of its Board of Directors and the exploration of strategic alternatives.
“Today, we announce that the founder of WWE, Vince McMahon, will be returning to the Board,” said Chairwoman & Co-CEO Stephanie McMahon, Co-CEO Nick Khan and Chief Content Officer Paul Levesque. “We also welcome back Michelle Wilson and George Barrios to our Board of Directors. Together, we look forward to exploring all strategic alternatives to maximize shareholder value.”
For all intents and purposes, this was a Governance Rumble:
Countdown Clock: The Director nomination period for shareholders to submit nominees is typically January to March, meaning Boards are “on the clock” to placate activist/dissident investors or risk a contested election.
It’s not happenstance Vince McMahon wrote letters to the Board in December regarding his interest in returning. This is the time of year activist/dissident shareholders can exert extraordinary pressure. Consequently, if you’re going to see a Boardroom shakeup, this is the time of year you usually see it.
Also, WWE has another “countdown clock” with upcoming license negotiations.
Surprise Entrants: Vince McMahon’s return was a surprise following last summer’s retirement due to sexual harassment accusations and hush money payouts, but the bigger surprise was the return of fired co-presidents - Michelle Wilson and George Barrios - as Vince McMahon allies. Like a wrestling storyline, these once feuding executives came together to form a Boardroom stable to change the governance landscape.
Chaos, Battle Royal, and Multiple Storylines: From corporate to creative, there’s chaos and multiple storylines playing out right now as everyone contemplates what Vince’s “return” means for WWE and themselves.
Pre-Determined Winner: As controlling shareholder, Vince McMahon was pre-determined to win the Governance Rumble. The main question was the path he was going to take. So when you see everything that’s happening right now, know that Vince McMahon has a lot of “creative control” over the governance story being told and what we’re seeing.
Start of “Main Event” Story: Despite so many storylines and battles currently happening, there’s only one “main event” story that matters in regards to Vince McMahon’s return; The exploration of strategic alternatives and sale of WWE. That story has officially started in earnest now that he has won the Governance Rumble.
Vince McMahon’s return almost looks like a worked shoot with how all the pieces fit. I half-joked about it on Twitter last December:
Jokes aside, there’s a legit “future of the company” storyline happening at WWE right now, and it is only appropriate this is happening right when Wrestlemania season is about to start. It’s the kind of chaos and intrigue that boosts ratings and audience attention so I genuinely wouldn’t be surprised if the Boardroom drama seeps into WrestleMania storylines.
Surprise Return of the Ex-Presidents
Initially, I was really surprised to see the ex-presidents (sounds like a tag team) Michelle Wilson and George Barrios appointed as Directors as part of Vince McMahon’s return. But then again, I realized this is Vince McMahon and wasn’t has surprised anymore.
It’s fair to say Vince McMahon has a slight reputation for firing folks, but he’s also known for being very loyal and bringing people back. One day you’re fired, the next you’re on his Director slate to shakeup WWE’s Boardroom.
Recall that Vince McMahon abruptly fired the duo on January 30, 2020 over a “strategic disagreement” that caused WWE’s stock to tumble. Well connected wrestling observing Dave Meltzer offered some color to their firing:
“While nothing was said publicly, privately, and this has also been reported in business coverage of the Wilson/Barrios departures is that they were looking to maximize current profits and thus build he price of stock up. McMahon was looking at the new money from these huge domestic price increases to increase profits, but also to heavily invest, notably looking at spending big money to sign up, keep and stockpile talent, making sure marketable talent didn’t leave, create new regional offshoots to attempt to dominate the grassroots aspect of the market as had started to happen in the U.K. market, and attempt to regain the monopoly of the business he seemingly had that has started to slip away with the increases in worldwide popularity of different groups, notably AEW and New Japan Pro Wrestling.” - Dave Meltzer via Cultaholic
If Meltzer’s reporting is true, Wilson and Barrios’ profit focus was - in hindsight - the right call, and WWE was subsequently forced to focus on profitability and cash flow anyway when the COVID-19 pandemic arrived in the U.S. shortly after their firing.
I’m not sure what Vince had to say, or do, to patch things up with Michelle Wilson and George Barrios, but I wouldn’t be surprised if his mea culpa partly included an acknowledgement he was wrong about their “strategic disagreement”.
All things considered, it’s probably a good thing to have The Ex-Presidents (yeah, definitely sounds like a governance tag team duo) in the Boardroom during strategic alternatives given their extensive experience and understanding of the business.
Establishing a New Board Order
With Vince McMahon’s return, there is now a “New Board Order” established to oversee the company and strategic alternatives.
There are a few interesting dynamics to be aware of as the company evaluates strategic alternatives:
The Board is (temporarily) majority Non-Independent Directors.
Board size is now 9 members following the removal of 3 Independent Directors by Vince McMahon and 2 resignations by Independent Director Ignace Lahoud and Man Jit Singh. There is no indication WWE plans to fill those vacancies.
The ex-Presidents, Michelle Wilson and George Barrios, potentially represent the majority swing vote on Board matters, and will (eventually) be able to serve special committees that require Independent Directors. Even if WWE filled Lahoud and Singh’s 2 vacant Board seats, Wilson and Barrios would still be key swing votes.
This Board structure looks optimized to do a deal vs. renegotiating a license deal to remain a standalone public company.
As a “controlled company,” WWE is exempt from the NYSE requirement of having majority Independent Directors so having 6 Non-Independent (I’m including Wilson and Barrios) and 3 Independent Directors is possible.
That said, it’s a temporary arrangement and will be 4 Non-Indpenedent Directors and 5 Independent Directors on February 1, 2023 when George Barrios and Michelle Wilson hit the 3 year anniversary of their firing from the company on January 30, 2020:
Stock exchange rules. Both the New York Stock Exchange and Nasdaq require that listed company boards have a majority of independent directors, and each exchange sets criteria. The focus is on independence from management so directors can exercise autonomous judgment. To qualify as independent for this purpose, directors cannot hold management positions at the company, its parents or subsidiaries, and former executives are not considered independent for three years after their departures. (Skadden)
George Barrios and Michelle Wilson’s Director “independence” status could be really important if the Board needs to establish special committees consisting entirely of Independent Directors on certain matters. They’d be qualified to serve on those committees and potentially chair them.
Overall, the Ex-Presidents will be quite powerful and influential in the Boardroom with their impending “independent” status and “swing vote” position in the Boardroom. Vince McMahon appointing them to the Board truly represents a New Board Order.
Man, the “Controlling Shareholder” is good at this governance game!
Road to TakeoverMania
As far as M&A is concerned, I don’t have anything differentiated to say. There’s plenty of “hot takes” out there from much more thoughtful people.
I do agree the road to a takeout is pretty straightforward now that Vince McMahon has returned. Bidders now know they’ll have direct sign-off from Vince McMahon, who is old school and willing to do handshake deals, when they engage the Board and management team.
The stock is certainly pricing in an acquisition at this point so it’ll be interesting to see how the strategic alternatives process actually plays out. In my opinion, negotiating to acquire WWE’s intellectual property - which includes multi-generational assets like WrestleMania - is a much different process (and valuation) than negotiating WWE content rights for 5 years.
Ending McMahon’s Media & Entertainment “Win Streak”
If WWE does indeed sell itself, it will (for me) finally end Vince McMahon’s “win streak” of identifying and riding various media & entertainment trends.
Vince McMahon has navigated several different media waves through the decades and has done a heck of a job staying on top of - and finding ways to monetize - emerging media & entertainment trends. He almost has a “sixth sense” on this stuff.
His experimentation and exploration of media & entertainment trends is (in my opinion) partly due to the evergreen challenge of monetizing WWE assets relative to its cultural and social relevance it contributes.
Everyone knows about WWE, but the best ways to monetize the consumer’s awareness of WWE’s product is a moving target.
This moving target is why I think Vince McMahon is willing to constantly test-the-waters and try new and emerging media models as he attempts to optimize WWE’s “revenue yield” on content assets.
His media and consumer monetization instincts go all the way back to the early wrestling territory days when he recognized the emergence of cable TV and pay-per-view, and leveraged those assets to consolidate the wrestling business and put regional players out of business.
Wrestlemania 1 was actually aired on pay-per-view back when pay-per-view was a nascent concept. Vince also recognized the potential of YouTube and developed a huge global audience on the platform. When TV deals weren’t giving him the rates he thought WWE deserved, he pursued the OTT direct-to-consumer model (WWE Network) and willingly cannibalized WWE’s pay-per-view cash-cow to drive OTT adoption long before markets embraced the OTT pivot.
Vince McMahon also recognized when the market was prioritizing and paying up for live sports content, and moved away from a standalone OTT stream service as a result.
And now, he recognizes media buyers are much more willing to pay up to own intellectual property outright versus licensing it:
Mr. McMahon thinks the media landscape is evolving quickly and more companies are looking to own the intellectual property they use on their streaming platforms, making WWE an attractive takeover target, the people said. (WSJ)
When you take a step back, we see that Vince McMahon had no problem moving WrestleMania from pay-per-view to WWE network to Peackock to maximize long-term value, and is now signaling a willingness to sell the entire WrestleMania franchise.
So if WWE does sell itself, the burden of staying on top of these trends to monetize WWE assets will get passed to the buyer and Vince McMahon’s “win streak” officially ends.
Going (Take)Out on His Back
In wrestling, there’s a concept called “going out on your back” and doing what’s “best for business”:
The principle of going out on your back is a way of giving back to the business: By losing, you help the career of someone who will continue wrestling. (The Ringer)
When Vince McMahon retired last summer in response to sexual harassment accusations and the Board investigating hush money payouts, I felt he was doing what’s “best for business” by retiring.
And like many “retired” wrestlers, there’s the inevitable return comeback, because they believe they have “more” to give to the audience and/or the business.
I mention all this, because Vince McMahon may have “returned”, but I think he knows he has to eventually go “out on his back” and his return is about doing what’s “best for business” as the company assesses strategic alternatives.
He rightfully believes he brings a lot of negotiating value to the table for any takeout and/or licensing discussion, and I like to believe he knows top bidders aren’t going to allow him to stay on after an agreement is struck. I’d go as far as to say buyers will insist any deal include an exit clause (or stockholder agreement that keeps him away) as part of the agreement or WWE won’t get the bids they want.
In my opinion, Vince McMahon will have to go “out on his back” and agree to not return as part of any takeout or licensing deal. I’m hoping he’s here to do what he thinks is “best for business” by being involved in a negotiation, but ultimately goes out “losing” his control of WWE.