Vince McMahon recently resigned as WWE’s chairman and CEO amid an investigation into claims that he paid millions of dollars to settle or cover up sexual misconduct and infidelity allegations. WWE’s stock price has risen about 9% since word of the payouts surfaced in early July.
Equity research analysts attribute the uptick to speculation that WWE is primed to change hands. McMahon’s departure and subsequent retirement from WWE has adjusted the future potential of the company, according to John Healy (managing director, Northcoast Research).
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But at least one Wall Street analyst who covers the company says the conjecture is unwarranted, and the current group wants to continue to own and operate the company. “I’ve spent time with this management team, and think I have a good feeling for the drive that exists across Nick [Khan], Steph [McMahon], Paul [Levesque] and Frank [Riddick],” Brandon Ross (partner, LightShed Partners) said. “They seem to really want to do this.”
WWE declined to comment on the speculation. However, according to comments previously made by WWE officials, the company is at least willing to entertain inquiries from prospective acquirers.
JWS’ Take: WWE’s share price has been steadily climbing (+50%) since early February, a period during which the S&P 500 dropped around 4%.
A trio of factors have given investors confidence during an uncertain economic time. The first is WWE’s largely contractual revenue base. “If you have contractual revenue going into a recession, you don’t have to worry about variability in earnings,” Ross said.
The second is WWE’s ratings rebound. According to LightShed data, viewership for the company’s two flagship shows, in aggregate on a per hour basis, is up about .6% year-to-date (through Aug. 10) after a decline dating back to 2017.
The third is the perpetually rising value of media rights. “Sports rights are being bid up nonstop,” Ross said, and WWE will enter into rights negotiations for both of its marquee programs, RAW and SmackDown, in the months ahead. The company’s existing deals with USA Network and Fox Sports expire in 2024.
Growing partnership revenue, a successful game launch with Take-Two and strong attendance and viewership for WrestleMania 38 were likely also factors during H1 ‘22. “It was the highest-grossing Mania that they’ve ever had,” Healy said.
Over the last 30 days, the share price has gone up even more as speculators anticipate a potential McMahon family sale. “Conventional wisdom has been that once Vince was out of the business, he would be much more willing to sell,” Ross said. Until McMahon stepped down in July, he was running day-to-day creative for the company.
At least some investors think that if McMahon has given up operational control, he would not be interested in maintaining the controlling shareholder position. Healy is not convinced WWE is going to be sold, saying it is too early to tell. But he does believe “the likelihood has increased that [McMahon] would monetize the asset and potentially do something with all of that capital that would be freed up.”
Ross has also not seen any evidence that would support the notion of a sale in the near-term. “Stephanie and Paul, aka Triple H, have been groomed to take over the business for many years. This situation is more analogous to what we saw with the Redstones, where Shari essentially took over control of the [Paramount Global] business from her father [and set out to continue his legacy],” Ross said. It is worth noting that McMahon took the business over from his father.
If McMahon decided to sell, WWE would be highly sought after. “Everyone’s looking for content right now, especially live content, and it’s a very digestible asset,” Ross said. The company’s market cap is around $5.3 billion.
There is also an increasing desire, at least amongst some broadcasters, to own or invest in sports-related assets, as opposed to renting the content at increasingly higher prices every few years. By doing so they gain the opportunity to “benefit from the equity value appreciation of the [asset] they’re helping to build,” Colin Neville (partner, The Raine Group) said to JWS back in Oct. 2020.
Endeavor (NYSE: EDR) would certainly make a logical acquirer. “If the McMahon family wants to sell, but maintain tight control over the business, there is the precedent of the UFC, where [EDR] let Dana [White] continue to run [the company],” Ross said.
Fox and Comcast could also potentially make sense. “[WWE is] live, it’s sports-like and the demographic is pretty similar to that of Fox News, which is why [Fox] licensed the content for SmackDown in the first place,” Ross said.
As for Comcast, “Most of the licensing dollars coming into WWE, which is the majority of WWE’s EBITDA base, comes from [the telecom giant],” Ross said.
“Disney is another one that people have speculated on over the years,” Healy said. The company’s move to stream WWE in Indonesia would seemingly support it has at least some interest in the content.
Ross doesn’t believe the tech giants would want the organizational distraction associated with owning the touring business, although Netflix could be the lone exception. “Reed Hastings has made comments in the past that the only way he would get into sports would be if he were actually able to own the league and control the economics outright,” Ross said. With WWE, he could do that and control the outcome of the live events.
But it’s not clear where Netflix stands with WWE “given that they pulled back on the Vince documentary,” Healy said.
All those possibilities have contributed to the market upswing, but there’s another side to any spike, “as investors who are in it for that trade realize that the trade may not happen, you could see institutional investors come out of the business,” Ross said.
Ironically, the company may not even be overvalued at its current price (about $72). “Our price target prior to all of these moves, and currently, was around $68. The price target has oscillated around that $68-70 level based on a fundamental view of the business over the last year or two, based on the financial performance,” Healy said.
If the company is not going to be sold, “the question gets back to core operations,” Ross said. “Are there things that Paul, Steph, Nick and Frank do that actually make this a better company than it was fully under the direction of Vince? There is a lot of optimism among the wrestling fan base that the creative is going to improve significantly under Paul.” If it does, revenue growth should follow.
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