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January 17, 2023

Deal That Allows Vince McMahon to Retain Influence is the Most Logical WWE Outcome

Last week, amid Vince McMahon’s return to WWE, DAZN reported the company had been sold to Saudi Arabia’s Public Investment Fund and would go back to being a private company. That report has since proven to be inaccurate.

However, bottom-up analysis on a host of publicly traded companies believed to be a potential fit as an acquirer, combined with the broader media business’ uncertain future, has at least some industry observers convinced a deal that enables McMahon to extend his continued influence over the company’s direction remains the most logical outcome.

“This would most easily be achieved in a deal with Endeavor’s sports assets or a go private scenario with the help of the Saudis,” TMT analyst Brandon Ross (partner, Lightshed Partners) said. Private equity participation is also a possibility.

News of former World Wrestling Entertainment (NYSE: WWE) chief executive Vince McMahon’s return to the company board along with subsequent reports indicating the company has

hired Raine Group

to advise on a potential sale

spawned speculation

on how the property might fit into various media company’s portfolios.

Comcast, which owns NBCUniversal and Peacock, and Fox are thought to be logical acquirers due their existing rights deals with WWE. The presumption is those companies could avoid upcoming renewal negotiations –and save on rights fees moving forward– with an acquisition. WWE’s linear rights deals with NBCUniversal (RAW) and Fox (SmackDown) expire in September ’24.

Warner Bros. Discovery, Liberty Media and streaming giants, including Netflix and Amazon, have also been mentioned in the conversation. 

But Ross said it is highly unlikely Comcast is going to buy WWE. “Do you think [CEO] Brian Roberts wants to take WWE on as an owned asset when he [is looking to] buy Warner [Bros. Discovery] next year?”

None of the other media companies cited make a whole lot more sense either. “You have to look at where those companies are at now, what their own strategic objectives are and their feelings about owning this particular set of content, and it just doesn’t align,” Ross said.

McMahon’s desire to retain a say in the business further complicates a potential sale to one of the publicly traded media companies. “Vince likely wants to be a part of it, and he won’t be able to if he’s at a big media company,” Ross said.

So too does the ongoing media distribution evolution. Uncertainty surrounding the business’ future economics may keep otherwise interested parties on the sidelines.

Remember, roughly half of WWE revenues come from the sale of core content media rights and that business is in the throes of disruption. In fact, some sports properties could see their rights fees re-adjusted downward in the not-too-distant future.

For reference purposes, RAW and Smackdown accounted for $603 million of the $1.27 billion in total revenue generated between Oct. 1, ’21 and Sept. 30, ’22. 

It is fair to suggest if a media company were to buy WWE, that its primary business function would likely change. One assumes the asset would be used to drive a direct-to-consumer subscription product and to promote other premium content within the portfolio.

The problem with that logic is WWE Network, the most successful segmented sports product in history, had less than two million paid subscribers at its peak. It is hard to imagine a media company spending the capital needed (think: upwards of $10 billion) to acquire WWE in the hopes of converting a fraction of those individuals. There are more effective ways to grow a sub base.

The execution risk associated with WWE presents an additional wrinkle. While the company touts itself as sports entertainment, its risk profile is more akin to a television studio than an established sports league–particularly if McMahon is not going to be involved. WWE’s product is only as good as its writing and creative, and historically speaking, the company’s largest shareholder has had his fingerprints all over that side of the business.

It is worth mentioning that McMahon’s creativity has been a target of fan criticism in recent years.

WWE may not be right for a publicly traded media company. However, it should remain a solid, profitable business for at least the next several years. “Like 2022, 2023 and 2024 should be record-breaking years for WWE in profitability and revenue,” Brandon Thurston (editor, Wrestlenomics) said.

“And the consensus of stock analysts covering WWE expects an increase in Raw and Smackdown U.S. rights. Obviously, if WWE gets such an upgrade, that will only further assure the company's profitability,” Thurston added.

Considering media’s uncertain future it might make sense for McMahon to sell if a prospective buyer offered to pay a premium for the company. But Ross does not believe the wrestling lifer is eager to exit. “Despite the fact that he is 77 years old, this business is his entire life’s work. He likely wants to continue to have some voice in it.”

It is possible the company does not find a buyer and is not sold. 

McMahon could also borrow capital and take the company private or bring on partners to help him do it.

Being private could give McMahon the cover needed to rehabilitate his image and would allow the company to avoid the scrutiny that comes with a public listing. It would also enable McMahon to strengthen his grip on operational and creative control and to buy some time until the macro-economic headwinds pass and the path to long-term value creation becomes more evident.

Presumably, he believes the company would continue to increase in value under his direction.

Despite the false report, it’s reasonable to think Saudi Arabia’s Public Investment Fund would have an interest in helping McMahon take his company private again. “They want to be relevant in entertainment, they’ve already done deals with WWE and how many other high profile entertainment assets would they be able to buy outright,” Ross asked.

The current interest rate environment is certainly not going to dissuade their involvement.

The most likely outcome is one in which McMahon does a deal with Endeavor (NYSE:EDR) that “allows him to come back and [he] still owns his equity in [the business]," Ross said. It is believed aligning with EDR would put WWE in the best position to succeed moving forward. The deal could be modeled after the company's UFC acquisition which allowed Dana White to largely cash out and still run the business.  

A deal with Endeavor could potentially include private equity involvement. It is presumed that PE would see intrinsic value in WWE. The company has a large library and draws enough in rights fees that even in a reduced, less profitable media environment it should still generate meaningful broadcast revenue.

PE is also likely to believe it “can come in and run [operations and ultimately a sales process] better,” Ross said. “WWE has over $100 million in corporate expenses. For a company this size, [that is a lot].”  

But it doesn't have to. Endeavor could spin off UFC and WWE into a standalone live sports conglomerate. 

Whatever the outcome is, expect McMahon to remain in the driver seat.