Should the McMahons Still Be Running WWE?

While World Wrestling Entertainment  (NYSE: WWE  ) has been a technology pioneer in effectively moving its pay-per-view events from the traditional cable/satellite delivery model to an over-the-top digital streaming network, there is no guarantee those efforts will work.

In theory the WWE Network, which uses a subscription model, should give the company more predictable revenue than the volatile PPV business. The network also allows the company to charge its customers less while giving them much more. That's usually a win-win for customer and company, but it only make sense if enough people sign up.

So far that has not happened. And while it's still very early in the game, it's at least worth considering that the WWE Network could fail or at least be a drain on the company for longer than expected. The company's struggles to get people to sign up for the network, along with its disappointing TV deals, leads to questions of whether WWE's management overplayed its hand and blew up its declining (but still lucrative) PPV business earlier than it should have.

One investor, Lemelson Capital, has called on WWE's board of directors to replace the executive management team or explore the sale of the business. 

"WWE has affirmed that even with one million subscribers for its WWE network, the company stands to lose between $45 million and $52 million in FY 2014, which validates the original short thesis," said Emmanuel Lemelson, chief investment officer. "This follows what we believe to be material misrepresentations by the company about both the performance and operating profit model of its WWE Network, which the company has wrongly labeled 'a home run.'"

Lemelson is being especially harsh -- and the reality is the company's ownership structure makes it extremely unlikely management would be replaced. But that doesn't mean changes in leadership may not be warranted.

Why is Lemelson mad?

The expectations for the WWE Network subscriber base and the company's North American TV deal have not lived up to expectations. WWE has only announced subscriber numbers once, coming in just below 700,000 42 days after launch. With 1.5 million or so needed for break-even, that number could be seen as a disappointment. But it's not so low that the company won't make its stated goal of 1 million U.S. subscribers by the end of the year.

The company's TV deal was similarly underwhelming -- the North America portion of it (the biggest part) came in at about a 50% increase, well below the increase other sports properties have been receiving.

Basically, people had high hopes -- likely encouraged by WWE management's enthusiasm -- and the results came up short. That's reason to be disappointed but it's hardly a reason to fire the executive team or sell the company. 

What is fact and what is fiction?

WWE might be the only company in existence where a number of its real executives also play executive characters on TV. Vince McMahon is often identified on the various WWE programs as "chairman," which he is, as well as the company's actual CEO.

In other cases it's more confusing Paul Levesque, the wrestler "Triple H," is identified as COO. In real life, he serves as executive vice president, talent, live events and creative. Levesque is not running the business the way a COO would; instead he has a big hand in the company's creative direction (though McMahon still makes the final calls). Levesque's job is best-served being on the road at all the company's TV tapings.

The same cannot be said about McMahon, who as CEO would be better-served giving up some creative control to focus on steering the business. A similar argument could be made for Stephanie McMahon, who in real life is the company's chief brand officer, while on TV she's sort of vaguely depicted as an owner. Stephanie is also both the real-life and story-line wife of Levesque. 

Though Vince McMahon rarely appears on television any more and Stephanie generally only appears on the live Raw (which tapes Monday nights) as well as some Sunday PPVs, neither is spending the workweek in the office.

Vince McMahon is good for the product

It's hard to argue that having Vince McMahon running the wrestling or product end of the company is a bad idea. He is the only modern-day wrestling promoter to have consistent financial success with the pseudo-sport. Both Vince historically and Stephanie recently have also been good for the product in their roles as part-time performers. Both McMahons play evil owner well and that has meant money for the company.

What is unclear is whether a wrestling promoter and his daughter (who was brought up in the business) should be leading the non-creative parts of the company. The WWE's future lies in making the company's streaming network a success. The problems inherent in that require a different type of marketing than selling PPVs and tickets to live events, which have been two of the three key revenue drivers for WWE.

The McMahons and Levesque are of course not working alone, but they largely control the direction of the product. That direction may not ultimately support their new business reality. It makes little sense to throw them out when there is nobody else with experience running a successful wrestling company, but it's not crazy to think the company's board should consider empowering another voice that has experience driving subscriptions.  

The business has changed

The third revenue driver is the rights fees the company receives from its television partners.

Television rights fees in the company's key markets have been locked in for the next five years. That means that the ratings for individual episodes of Raw and Smackdown -- the company's flagship shows -- are much less important than they have traditionally been. A higher rating does not mean more money for the company and ratings are unlikely to fall precipitously. Because of that, it's worth questioning whether three of the company's top four executives (CFO and Chief Strategy Officer George Barrios would be the fourth) should be wasting time appearing on television each week.

Vince McMahon has a reputation as someone who oversees even the smallest details on his TV shows -- down to delivering lines to the hosts during the shows. It might be time for him to step back from that and focus on what's necessary to grow the network. Whether that means meeting with partners, doing media appearances to tout the network, or traveling the world to ensure global subscriptions hit target numbers, Vince needs to realize that day-to-day creative does not matter as much as it once did.

The current team needs to stay in charge because they are the only people available who have run a wrestling company successfully. But they need to shift priorities and realize that they are no longer carnies who live and die with the box office for each show. That may mean adding someone to the top team with board backing who has enough clout to not worry about being fired for disagreeing with the McMahons. 

You fire executives or sell a company when it's clear things are not working. All that's clear with WWE is the network is not yet a sure thing and the North American TV deal increased, but not as much as expected. Changes in approach are needed, but changing leadership would be premature.

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Read/Post Comments (23) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2014, at 9:17 AM, knscline wrote:

    I feel that the WWE should offer the WWE network on TV, not just a computer, smartphone, xbox 360 etc....

    My family and I do not like watching TV on the computer.

  • Report this Comment On June 07, 2014, at 10:54 AM, Krystlequintero wrote:

    I will never get the WWE Network. I was in the hospital in 2013 during wrestlemania and decided to pay $60 to watch it online from the wwe website. It went out on me at the begining of the show. So upset and disappointed. Luckily I called my bank and told them what happen and they have me my money back. Now I think eventually the wwe network will do that during a ppv. I would pay for the network if it had a tv channel but not on the internet.

  • Report this Comment On June 07, 2014, at 11:03 AM, PAJohnDoe wrote:

    You can purchase one of the many streaming devices or game systems that would enable you to view it on your TV. They don't have to cut the cable companies in or fight for space on the dial, and that's how they're able to keep the network so cheap and still provide us with so so sooooooo much content. I mean, they had that 24/7 on-demand channel for a long time, but you'd still only get a fraction of what you can get on the network for the same price.

  • Report this Comment On June 07, 2014, at 11:27 AM, PAJohnDoe wrote:

    Keeping cable companies out of it is part of what keeps the Network so cheap, because they don't have to get a cut of the business. Also, if it was an actual cable channel, there's no guarantee that your cable provider would even be carrying it, and there certainly wouldn't be ALL of that material at your fingertips.

  • Report this Comment On June 07, 2014, at 11:29 AM, PAJohnDoe wrote:

    Sorry for what was basically a double post, because I had made my first comment quite a while ago, and it didn't appear to pop up until right after I'd pretty much written the same thing again.

  • Report this Comment On June 07, 2014, at 12:45 PM, greedy wrote:

    This article was a complete waste of my time! Daniel Kline you should have other people writing your articles for you this one is trash! The WWE doesn't need people's opinions on how to run their company. Just watch the show's and enjoy it! The WWE is doing fine and will still be around twenty years from now. That is not a promise it is a fact! You would not like it Daniel Kline if somebody told you how to do your job! Keep out of their business you media troll!!!!

  • Report this Comment On June 07, 2014, at 12:46 PM, lilly38 wrote:

    What kind of stupid question is that ? Their doing a great job .The wwe rules & always will .The Wwe network is well worth the price the ppvs come in great.

  • Report this Comment On June 07, 2014, at 1:06 PM, lovettstough wrote:

    NO! NO! NO! Absolutely NOT! The McMahons' need to get out while they still can! Vince McMahon father whom actually started the company & ran it very well until the early to mid 80s is rolling over in his grave about now at how poorly his son & his grandchildren have run the company since. The McMahons' including Triple H & excluding Vince father will be the demise of the WWE without a doubt!

  • Report this Comment On June 07, 2014, at 1:08 PM, lovettstough wrote:

    Even Vince McMahon said himself once that his father would not approve of the way he has run the company or anything he has done with it!

  • Report this Comment On June 07, 2014, at 1:30 PM, JDS2805 wrote:

    Vince, Linda, Steph, HHH- NO! Shane McMahon- Absolutely! Best thing they can do is beg Shane to come back. He relates well to the wrestlers, understands what the fans want, and is a good guy.

  • Report this Comment On June 07, 2014, at 2:06 PM, floyd71 wrote:

    Vince has taken this company farther then anyone could have dreamed. He has made it mainstream ,and as smart television sales increase so will subscriptions to these type of networks .This is the only reason i havent subscribed .Its a great deal at 9.99 ,you get all the pay per views for this price, The stock was overvalued and has since corrected .Everyone should be patient .In time this will be a success .

  • Report this Comment On June 07, 2014, at 5:50 PM, Droppo wrote:

    No. The product is still wrestling. People that don't know much about wrestling like to say things about needing something new for the modern age. The modern age doesn't change what happens in the product or why people pay attention to it. Changing the delivery system isn't that big a deal.

  • Report this Comment On June 07, 2014, at 8:00 PM, thedude1500 wrote:

    From a creative standpoint, the WWE has been floundering ever since the demise of the WCW and ECW. McMahon's crew was always more reactive than proactive. The nWo angle nearly sunk the WCW, had WWE not replied with the Attitude Era. Had then AOL-Time-Warner not gone on it's purge of anything with Ted Turner's name on it, WCW might have put WWE out of business.

    The only reason WWE is still on top is there is no competition.

    TNA and ROH are cash starved (despite ROH's ownership, Sinclair Broadcasting, being stronger than WWE's). The verdict is still out on Jeff Jarrett's new promotion (I don't know how much he's worth, but I don't see him rich enough to be able to take on McMahon).

    I think it's time for the McMahons to step aside and let some new blood run things.

  • Report this Comment On June 07, 2014, at 10:17 PM, runninggun1024 wrote:

    The three stooges could do better then triple o and his hag in waiting.There was a rumor that VINNIE MAC was seen on the yellow brick road on his way to see the wizard for advice on how to turn the WWE around.

  • Report this Comment On June 07, 2014, at 11:06 PM, irvman01 wrote:

    no i think with vince loosing all he lost in the company and his investigation i think he should be forced out of his chair and another CEO put in his place other then Hunter or Steph

  • Report this Comment On June 07, 2014, at 11:27 PM, jho78 wrote:

    Reading some of these comments it is very obvious to spot those who have no concept of how a business such as WWE is run and only thrive on the "just watch it and shut up" mentality.

    Happy shareholders a successful company makes.

    Upset those shareholders and you can kiss your beloved WWE goodbye. Network, PPVs and your beloved puppet, John Cena.

  • Report this Comment On June 08, 2014, at 1:58 AM, wwwocls wrote:

    The sad truth is that the WWE should not be the No. 1 wrestling company in the United States. Their product is ridiculous, over blown and McMahon level pretentious. The biggest problem could be that everyone knows it. Hopefully, other companies will rise and displace the WWE as No. 1 or at least become it's equal. That doesn't mean resumption of the old territories necessarily (though that would be great) but a diffusion of wrestling talent (a Big Bang?) would shoot life into the arm of pro wrestling in America and get it out of the hands of the WWE monopoly. A return to the suspension of disbelief among wrestling fans would also be great. Let pro wrestlers do their thing and quit smart marking the whole thing into oblivion. That's no fun. "Sports entertainment" is no fun.

  • Report this Comment On June 08, 2014, at 8:50 AM, robonious wrote:

    Two things here. First off when a guy owns 70 percent of company shares he isn't going anywhere. To think so is laughable. Secondly the wrestling business is unlike any business in the world. A man that doesn't understand the wrestling business from top to bottom is doomed. The TBS/AOL time Warner executives are proof that this will not work. They mismanaged WCW for a decade before it finally collapsed. Vince is the only man to see this thru.

  • Report this Comment On June 08, 2014, at 8:59 AM, Stecki wrote:

    Now that I've read this, how long until I see a Motley Fool article about how the McMahons have everything under control and investors should have faith in them.

    I'm making fun of you guys. Do you understand why?

  • Report this Comment On June 08, 2014, at 12:30 PM, Mullins wrote:

    To knscline: If you have a "Smart TV" you can get the app that way as well. I understand you are talking about an HBO type model, and they looked intot hat option, but their rates for their own network worked out to like .15 per subscriber. The model was not going to be a lucrative one. Also with the model they currently have in place it makes it much easier to be able to access the type of back log content from earlier eras of wrestling from other promotions they now have the library rights to.

    To Krystlequintero: Sorry to here you had 1 bad experience. To be fair you were in the hospital on their Internet connection. I have been watchign their PPVs online for 3 years now, and I am also a Network subscriber and have only had 1 issues and that was during their first live event, which was to kick off the Network debut of their NXT, which came out the first week the Network went live. Since then I've had no issues with pausing, buffering, or any other negative effects due to my connection or their servers.

    Now that is out of the way, I am a stock holder in WWE and since it's decline have been purchasing more and more. In the end they will come back from the slump and be back north of $15. On top of that the suits/top investors will be happy again. I think the problem is that the types of top level investors do not understand the product, or the visions to take it into another direction. These are probably the same individuals who passed on Netflix when it first showed up. The numbers may seem low, but right now it is only a few months in, and ONLY IN THE US at the moment. It has not even been open world wide yet. That will come later this year, early next year.

  • Report this Comment On June 09, 2014, at 12:46 PM, maxamillion wrote:

    wow you wrote up a what i consider " bashing " article on the WWE . does anyone really believe they will have trouble getting 1 million subscriptions ? what the have now i would bet is at least 1 million and that is JUST america ! the network is not even in the UK yet lol ! i glady piad 60 measly bucks for 6 months yes yes yes ! and i will renew after 6 months is up, the reason the stock went from 30 dollars to 11 is very simple it is called SHORT trading and HEDGE funds, short traders make their money when the stock pps declines right ?? well there ya go big guy..

  • Report this Comment On June 09, 2014, at 12:52 PM, maxamillion wrote:

    jho78 ? wow no like john cena i guess huh ? you dont think maybe just maybe some hedge funds could have possibly come in and done a short attack ?? do you know anything about the stock market ? its how they make their money the pps goes down and they win, who do you think brought the price up to 30 dollars ?? i will tell you in was the SHORT interest ! its called a " short attack " and can last months, years, days, etc. my gosh some people actually think most investors dropped wwe like a bad habit lol its not true !!

  • Report this Comment On June 10, 2014, at 7:38 PM, antbojo wrote:

    Mr. Kline has some decent points, but I have to disagree with his statement that day to day creative is not as important as it used to be. In actuality, since the main draw of the WWE Network is its showing of pay-per-view events, it's imperative that the weekly product stays strong to entice people to want to watch the PPVs, where storylines usually reach their conclusion. This will be especially important during the six months farthest away from Wrestlemania, where subscribers will be most difficult to gather.

    Their best bet to increase subscribers is to 1) find a way to improve their promoting of the Network on TV without angering NBC Universal and 2) concentrate on promoting Network shows containing their core product, instead of reality shows like Legends House. Along with that, they should try to put a stop to their constant non-fundamentally sound booking and improve their core product so that ratings increase and more people see their Network advertising, period.

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