WWE: Still A Family Affair. For Now. (NYSE:WWE)


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World Wrestling Entertainment (NYSE:WWE) is trading about 3% down as of this writing on reports that long standing Chairman and CEO, Mr. Vince McMahon, has stepped down from those roles as the board probes a secret $3 million payment to former employee as Seeking Alpha has covered here. Stephanie McMahon, Vince’s daughter and a long-time WWE executive herself, has been appointed as the Interim CEO. Both the outgoing and incoming (interim) CEOs have pledged their full support to the investigation.

WWE fans will almost always equate Vince’s on screen persona, “Mr. McMahon” with the legendary phrase “you’re fired” as he screams into a microphone. In a irony of sorts, Vince has fired himself (at least temporarily), away from the live audience.

Controversies are nothing new to WWE and Vince in particular. Be it the controversial (yet successful) “Attitude Era” or the steroid scandal in the 1990s (he was acquitted) or disgruntled, former employees (high profile superstars) washing their dirty linen in the public. We won’t be surprised if Vince comes back storming as usual.

Coming back to the most recent story, it’s not the controversy itself that’s surprising but the fact that Vince even agreed to step down so quickly. Fans and followers of the company/product know that Vince is very protective of his company and does not give up that easily, if at all. But things do appear different this time. Coming from a long-term fan of the product having followed it for nearly 30 years, it does appear like the family’s hold on the company is not as strong as it was in the past. Let’s go down the list of “insiders.”

  • Vince McMahon, aged 76, is no spring chicken (don’t tell him I said so). Detractors have long been calling for the younger ones to take over, although the very reason WWE even exists today is Vince’s genius and calculated risks.
  • Linda McMahon (Vince’s Wife) is 73-years-old and is likely still busy with her political aspirations. As a reminder, she served as the 25th administrator of the Small Business Administration under the 45th president, Donald Trump.
  • Shane McMahon (Vince’s Son) has always shown that he’s ready to try out other ventures.
  • Stephanie McMahon (Vince’s Daughter) and the new interim CEO, had just taken a leave of absence herself from her former role as Chief Brand Officer. The official reason given was for her to focus on family but the rumor hill has it that she has not been getting along with several key executives, including Kevin Dunn, often portrayed as Mr. McMahon’s right hand man.
  • Paul Levesque (better know as “HHH” and Stephanie’s husband) has long been viewed as the heir apparent since Shane’s initial departure from the company. But recently, Levesque disclosed a major health scare that forced to him retire from in-ring competition and it’s not inconceivable to think that he and his wife (Stephanie) believe it’s for the larger good of the family if “The Game” slows down his game to have a longer innings! As a father of three young girls, Leveque’s life and health is far more important to his family than anything he might accomplish outside of the ring, after his stupendous run inside the ring.

So, where does this leave the investors? Let’s evaluate.

  • After a 25% run year-to-date, the stock is trading at a forward multiple of about 26, which is quite rich in the current market conditions. We’d recommend staying away from a valuation perspective. The company does pay a dividend but the yield is quite small generally and even more so in the days of run away inflation.
  • While Vince himself has been pretty reluctant in the past about selling the company, the company has been sending signals in the last few years that is open for sale under the right circumstances. The company’s actions supported this claim as it was cutting cost even after the economy reopened and in-person attendance returned. In a family operated business, the buyers usually pounce on opportunities like this to make a deal. It will be interesting to see how things pan out.

Conclusion

We suggest investors to stay away from the stock for the time being. If the stock joins the market sell off and the story around Vince intensifies with negative tone, the company may get a bit more desperate to be bought. But as things stand now, a sale doesn’t appear imminent and potential buyers may also want to stay away from the controversy pending investigations.



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