By Elena Siniscalco
Professional wrestling can teach us a lesson or two about business. McMahon’s return as WWE’s executive chairman shows the inevitable pitfalls of dual class shares, writes Will Cooling
Professional wrestling might not be what you were expecting in a business paper. But nonetheless, here it is. Two weeks ago, the industry was rocked by the sudden return of Vince McMahon to power in World Wrestling Entertainment. The man who turned his father’s regional touring promotion into a multinational media powerhouse had been persuaded to “retire” last summer after a series of allegations of sexual impropriety. Unsurprisingly it turns out that a man who calls his yacht “Sexy Beast” and keeps a Tyrannosaurus Rex skull in his office, is not the retiring type.
The world of professional wrestling may seem cartoonish, but the reach of WWE is vast. Every week it produces nine hours of programming that airs across the world, routinely being amongst the most watched shows on American cable and network television. Its American rights deals alone see it clear more than $700m a year from NBC Universal and Fox. Not for nothing is it currently worth approximately double the value of Manchester United.
McMahon’s return as WWE’s executive chairman therefore should not be dismissed as a frivolous story, but one that has some profound lessons about life and business. It is, for one, yet more evidence that the energy behind “MeToo” is fading, with powerful men being able to quickly recover from being “cancelled” (news to Jeremy Clarkson’s ears, no doubt). McMahon’s return comes in spite of an ongoing investigation which alleges he failed to properly declare numerous payments made to female workers within WWE in return for their silence. The payments in itself is one thing, but it also means much of the damaging information about McMahon is not yet in the public domain, a point the WWE board was keen to point out. His return also meant his daughter, Stephanie, was turfed out of the position – hardly a win for women in wrestling.
McMahon’s comeback also illustrates an important point about American regulation of public companies. This is especially acute with a Prime Minister who favours dual-class share structures.
McMahon took over the company in 1999 to capitalise on a resurgence of popularity fuelled by superstars such as “Stone Cold” Steve Austin and Dwyane “The Rock” Johnson. He and his family became rich beyond their wildest dreams after they sold 60 per cent of WWE to outside investors. But it was corporate cakeism at its finest: any share not owned by McMahon or his family is automatically relegated to a lower class of stock, with no voting power. Although he owns less than 40 per cent of the company, McMahon is the controlling shareholder because he owns 80 per cent of the shares that matter.
From a corporate governance perspective, this is a disaster. WWE’s board is legally responsible for protecting all shareholders investment in the company, but effectively answerable only to McMahon. In a bizarre paradox fitting for corporate America, they’re legally tasked with thinking beyond just McMahon’s wants and desires, but if they dare ignore his demands, they’re at risk of being fired. This once hypothetical risk materialised when the wrestling boss removed three directors after the board initially rejected his return. Two associates and McMahon took their place. WWE is far from the only US company where decisions are distorted by structures which disenfranchise ordinary shareholders and allow founders to indulge themselves.
And the stock market reaction to all of this shows us the days of casino capitalism are far from over. McMahon has ignored a vote from the board that his return was not in the interest of the company, threatened to veto any future rights deals if he’s not allowed to return, two directors have quit in protests and the company’s chairwoman and co-chief executive abruptly retired only days after they personally promised investors there would be no changes to management structure. Such erratic behaviour should have caused investors to flee in terror. Instead, McMahon’s talk of linking his return to a sale of the company has caused investors to ignore the drama and gamble on a windfall. In other words, the stock price is currently surging.
Perhaps the most telling thing is that McMahon felt the need to return at all. Here is a 77-year-old man who has achieved everything he could ever want to achieve with WWE and had successfully handed control over to his daughter. Yet he couldn’t last six months with just his celebrity friends and vast fortune to entertain him. For people like McMahon the money is nothing but the score that shows how well they are winning in life.
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