WWE’s McMahon May Flip From Hero to Heel If He Doesn’t Want to Exit

For 40 years, Vince McMahon has been in complete control of World Wrestling Entertainment.

Since buying the company from his father in 1982, he’s dictated details large—crowning himself world champion twice in wrestling’s scripted universe of Superstars—and small: Upon his return to the board last week the company amended its bylaws to add faxes, and eliminate email, as one of two ways to call a special board meeting, along with telephone calls. Vince likes business old school, apparently.

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But there’s another old school business reality he faces on his dramatic return as ringmaster: To maximize shareholder value through a probable sale of WWE, he will almost certainly have to relinquish control. If he doesn’t, shareholders not named McMahon have a problem.

There are practical reasons for this. Since WWE’s IPO in 1999, Vince, along with wife Linda and eventually their daughter Stephanie, have commanded the business by full control of Class B stock. Class B shares have 10 times the voting power of the common Class A shares, bestowing the family with 88% of the voting power in WWE.

There are two wrinkles: Nobody besides Vince, Linda or one of their descendants can own Class B stock—they convert to common stock automatically if an outsider acquires any. That means McMahon owns a minority of WWE. And his stake only gets further diluted in any merger with a publicly traded company that can swing a standard M&A transaction. There’s no realistic scenario in which one of the large players that Wall Street believes could be bidders (Comcast, Netflix, Disney, Fox, Amazon and Liberty Media) allow unfettered control of WWE to remain in McMahon’s hands.

Similarly, is All Elite Wrestling owner Shad Khan, also rumored to be interested, going to allow McMahon to run the business? Khan is worth four times as much as McMahon, according to Forbes, and surely has to feel confident in his management skills with his Jaguars in the NFL playoffs and Fulham FC a surprising dark horse to win the English Premier League this year.

There is the possibility of a deal with a smaller publicly traded business that would be open to McMahon having voting control of a new entity. For one, financing by smaller players is a heavier lift to amass the $8.5 billion or so WWE may command.

McMahon retaining his role would saddle the stock with another long-term handicap: Since late last decade, the S&P 500 Index no longer adds businesses where one person or entity has majority voting control. In the S&P’s eyes, such situations mean management may not work in the best interest of common shareholders. How important can S&P 500 inclusion be for a stock? There are $15.6 trillion worth of assets worldwide indexed to the S&P, according to S&P Global. That means if your company is added to the index, literally billions of dollars of investor money immediately buys and holds your stock. That’s more valuable than the rights to the characters of Roman Reigns, Charlotte Flair, et. al., and a big disincentive to offer supervoting stock in a deal.

In short, any transaction in which a company pays WWE shareholders a premium over its recent share price of $90 probably means Vince has to go. If he doesn’t want to go, then there are lots of scenarios that could put shareholders’ recent profits at risk.

One possibility floated by equity research firm Lightshed Partners is a reverse Morris Trust merger of UFC parent Endeavor with WWE. In such complex deals, pursued because they can avoid triggering capital gains taxes, Endeavor shareholders gain a majority of voting control of WWE under the WWE name. It could happen: Endeavor executives openly speculated about a deal with WWE last year, and the sports and entertainment focus of Endeavor dovetails with WWE. In that case, McMahon has to relinquish control, by rule.

Still, given the market has beaten down Endeavor stock as much as it has buoyed WWE’s in the past year (EDR down 35%, WWE up 40% in 2022), it’s an open question if Wall Street would welcome such a merger.

There’s an even greater risk for WWE shareholders: What if McMahon wants a deal for WWE but also wants to stay in charge? In that case, it’s possible WWE shareholders don’t get bought out at a premium, and they may even lose money from the recent share price.

You don’t have to look hard for an example of this in the sports and entertainment world. In 2021, Madison Square Garden Entertainment, which owns the Manhattan arena and other venues, bought Madison Square Garden Networks, which owned the regional sports TV network that showed games of the Knicks and Rangers (teams owned by yet a third MSG entity). Both companies were publicly traded and controlled, like WWE, through a special class of voting stock held by the Dolan family.

When announcing the deal, MSG Entertainment said it would pay a price lower than what MSG Networks shares were trading, offering a price close to the last share price “unaffected” by rumors of a potential MSG Networks sale that had circulated in the market. That resulted in MSG Entertainment paying a discount on the price to Networks shareholders.

Because the Dolans controlled both boards, they approved the sale. And because they gave Networks shareholders stock in Entertainment, they met fairness rules around cashing out minority stockholders at too low a price. By getting stock in the acquirer, common stock holders weren’t locked out of future growth in the business, the yardstick for deciding what’s fair and what isn’t.

By the same criteria, it’s possible McMahon could argue the unaffected price for WWE was around $69, the share price before news of his return to the board broke two weeks ago, some $30 lower than today. It’s not beyond the realm of possibility that McMahon and a deep-pocketed third party—Saudi Arabia Public Investment Fund or some large private equity company—could construct a deal in which existing common stock holders get a price lower than they expect while not running afoul of fairness rules, while getting new money into WWE at a below-current market price and leaving McMahon in charge with a greater war chest that may—or may not—pay off down the line.

The odds of that happening are low. But if there’s anything pro wrestling fans should know, the main character can suddenly do a heel turn.

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