Inside story of WWE: The past and the future ahead

As Roland Barthes had once described wrestling, as the “spectacle of excess”, Vince McMahon is the living proof of playing big and understanding this concept.

Mr. McMahon, as he is famously known inside the industry, has ruled the WWE for four decades now, overseeing its best of times as the company grew from a regional operation to a powerful international brand.

The WWE is currently valued at approximately $2.3 billion according to Forbes and has a weekly audience of 15 million in the United States alone. The program is broadcast in 150 countries in 30 different languages, while WWE movies, books, video games, T-shirts, and action figures continue to sell like hot pancakes.

Since 2008, the revenues of the company has hardly escalated having hovered around $500 million, while profits continue to stagnate. If you exclude the one-time film impairment of $11.7 million, the company made only $10.4 million last year, compared to $32.2 million in 2012 and $40.5 million the year before.

Despite these, the company’s stock prices continue to sore after having tripled in the past six months. It was $9.70 in September and reaching an all-time high of $31.98. The recent escalation has helped Vince McMahon to a billionaire status, owing to him owning 52% of the company shares, he was briefly a paper billionaire in 2000.

The soaring prices of shares are due to the appending renewal of four of it’s largest television contracts, for which the WWE is holding out for more than twice its current rate of approximately $100 million coupled with the growing speculation of McMahon selling the company, as the McMahon’s don’t have an articulated succession plan.

Comcast and Madison Square Garden Co. have both been linked heavily as potential suitors. Another factor aiding the growth of the brand is the 7% annual growth rate in emerging economies like India, Mexico and South Korea, who added a combined $116 million last year in revenue.

Vince McMahon announced the WWE Network on the podium at the Las Vegas’ Consumer Electronics Show in January, where told his audience that the Network will not be broadcast on cable television, instead it will be streamed directly to the users 24/7 via the Internet.

The Network will not be like the Monday Night RAW which has been a consistently top-rated program each week on cable TV, nor would it be another pay-per-view like WrestleMania or Summer Slam, it will be how it’s described within the entertainment industry as going over the top.

Network threatens to derail the $82.5 million revenue that the PPV’s generate, while also threatening the upcoming TV deals, and remains a huge gamble. According to a faction of experts, the Network could double the size of WWE’s business in two years, while some believe that it will fail miserable, supporting the theory of why investors sold almost $4 million worth of shares of the company early this year.

The Network is how Mr. McMahon likes things to be: risky, exciting and completely unconventional.

In his office at the WWE headquarters in Stamford, Connecticut, McMahon stares at the enormous dinosaur skull with open jaws, which is mounted on a square panel of scarlet fur kept next to his desk, and was gifted by his son-in-law Paul Levesque, or as most of you know him, Triple H.

“I look at it like it’s a really nice monster,” he says in an interview with Forbes. “When you feed the monster, the monster is happy. The problem with that is, the monster grows. And as the monster grows, then the monster wants more to eat. And as long as you do that, everything’s great. And if you don’t provide the food, then bad things start to happen.”

Is the monster the audience?

“You can look at it that way, absolutely,” McMahon says with a smile.

The monster could also be the competition to the WWE, the mixed martial arts, NFL or Marvel superhero movies which are targeted towards the younger viewers, 21% of the WWe’s audience are kids below 18, while the beast on another hand also represents the insatiable desire of Mr. McMahon to win.

A total of $75 million has been spent by the WWE over the past three years preparing for the launch of the WWE Network, which was launched on 24th of February. The initial demand for the Network was so high that the servers of Major League Baseball’s MLB Advanced Media, which is the technology provider of the WWE, crashed on its launch day.

McMahon is always game for risks, especially with technology. He vouched and used the closed-circuit television very early in his career and although boxing beat him to pay-per-view events, he is still considered a pioneer in PPV programming.

The WWE Network was promised to fans and investors in 2011, but the vision for the Network has changed immensely and the monster has only grown bigger. From being a channel devoted to wrestling then hopping to the next plan of a pay-channel model like, HBO, McMahon finally zeroed in on an ‘over-the-top’ strategy, owing to the phenomenal success of Netflix, which has more than 44 million subscribers as of now. The latest model reaches directly to its biggest asset, a very passionate fan base.

If the Network is to succeed and not destroy the pay-per-view and TC business in the process, it is set to dramatically reinvent the economics of the industry. Based on its success, many similar companies may change the way they work, especially UFC and the boxing PPV divisions of HBO and Showtime. While, the calculations for the success of the Network is very simple.

The Network for $9.99 per month (on a six-month commitment) gives the subscribers access to over 130,000 hours of WWE programming, the content of which dates back to the 1950s. But the USP of the Network is that it will live broadcast all of the 12 pay-per-view events of the year. $55 is all you have to pay for all the pay-per-view which was previously equal to purchasing two PPV’s.

If the cannibalization of the pay-per-view customer’s is taken into account, which roughly amounts to about $60 million per year, the company requires 1 million subscribers on the Network to break even. 2 million customers will add $50 million to the company’s EBITDA, while with 3 million the number jumps to a whopping $150 million.

The launch left some of the WWE’s television partners felt cheated by the over-the-top strategy, as DISH Network had announced well in advance of the launch that it was dropping all WWE’s pay-per-views–including WrestleMania XXX, although later DISH agreed to carry on with WrestleMania. DirecTV issued a statement on WWE’s new venture: “Clearly, we need to quickly re-evaluate the economics and viability of their business with us, as it now appears the WWE feels they do not need their PPV distributors.”

McMahon on his part feels that it is foolish on the distributors part to not carry on with the events as it was the was found money for them. McMahon has always made money for his partners, and of course himself.

“I don’t consider myself a rich person,” he says in a rare moment of modesty. “I know that I am, but it’s not like I belong to any country clubs.” He and his wife, Linda, live in Greenwich, Connecticut, but he doesn’t exactly treat himself to expensive toys. Years ago he owned a cigarette boat called Sexy Bitch, but McMahon’s indulgences are limited these days. “I have a car that goes very fast and a motorcycle that goes extraordinarily fast,” he says of his Bentley and a Boss Hoss 502. “I love speed.” Beyond that, he adds, “I don’t really have anything in common with anyone in Greenwich except zeros. Normally I do not like rich people.”

A third-generation wrestling promoter, Vince first met his biological father, Vince James McMahon at the age of 12, before being raised by his mother and several physically abusive stepfathers in rural North Carolina.

“When people would say, ‘Do you think can you follow in your old man’s footsteps?’ I would immediately say, ‘No, and I don’t want to, and I can’t fill my dad’s shoes. I have to do things my own way.”

Since late 1940s professional wrestling was being broadcast on national TV, but in the 60s small time wrestling organizations started with the broadcast of their respective TV shows in the local network. These regional companies didn’t invade other territories or steal their talent.

But, Vince saw things differently, as he purchased the company in 1982 from his father and his partner.

“It was a balloon payment situation,” he says, “So if I didn’t make the last payment they took the business back and kept the cash.”

On the event when he made the final payment, he set off a Battle Royal in the industry, destroying the boundaries of territories and for him, anyone’s talent was fair game. He also eventually accepted to the matches being scripted while branding his product as “sports entertainment.”

As McMahon would later say of his strategy, “Had my father known what I was going to do, he never would have sold his stock to me.”

An all-out television assault ensued as McMahon expanded his brand which was then referred to as World Wrestling Federation, using broadcast TV, pay-per-view, and cable. Soon enough with the help of his biggest star, Hulk Hogan, both Hulkamania and the WWF were running wild.

Although things haven’t always been rosy for the 68-year-old, who was knocked down, and even counted out, but nobody could stop him.

In 1994, the federal government had put him on trial for the illegal distribution of steroids to his performers, although, he was eventually acquitted and the prosecutors who had vowed to expose the “dark, corrupt underbelly” of wrestling failed.

Then came the “Monday night war”, when Ted Turner’s World Championship Wrestling used McMahon’s strategy on him, signing his WWF stars including Hogan.

“It came down to attrition,” McMahon says. “Who was going to burn out before the other guy did?”

In the end, it was Ted Turner. In 2001 he sold the name rights along with the video library of WCW to WWF for $2.5 million.

Not all his plan’s bore fruit, like the WWE-themed restaurant in Times Square which closed only after three years and had cost WWE nearly $25 million. The XFL was also a disaster, with McMahon’s failed attempt to bring the WWE attitude and storytelling to a professional football league.

“I like learning from my mistakes and bringing the values I’ve learned forward,” McMahon says of his failures. “But I’m not good at patting myself on the back. I’m not good at looking back.”

He was not prepared to take any chances with the launch of the WWE Network and roped in 60-year-old Hulk Hogan the week before the Network went live, to announce the new venture.

Although official numbers have not been made public, it is widely estimated that around 250,000 people subscribed to the Network on the day of its launch. Which puts the company in a strong place to at least break even reaching the mini target of 1 million subscribers. Although, some analysts have predicted that the Network will out-grow any prediction by the WWE and acquire as much as 6 to 8 million subscribers.

However, Intrepid Capital Management, one of the largest outside shareholders of the WWE, sold 10% of its stake in the public float at a profit of 100%.

Jayme Wiggins believes the WWE Network will be tough to sell in the long run.

The network “is a slam dunk for a die-hard fan,” which Wiggins estimates to be a core of 700,000, “but I don’t think it’s going to be easy for them to get another 500,000.”

However, the biggest question hanging over WWE is succession plans for the imminent departure of McMahon, who even though shows no signs of slowing down, but had acknowledged that it can no longer remain his sole vision.

In addition to the comedians and veteran sitcom writers that the WWE has in its creative team, WWE executives also are from diverse backgrounds. The Chief Strategy & Financial Officer, George Barrios, was previously associated with the New York Times Co.

If McMahon, decides against selling, there are logical heirs to his kingdom, but he remains coy about it. McMahon’s 37-year-old daughter, Stephanie, is the current chief brand officer, and her husband, Paul Levesque, is the executive in charge of talent, live events and creative, but there is no guarantee that the company will be run by another McMahon in the future. “I would like to see a degree of that,” he admits. “I just think as times go on, things will evaporate. Eventually, Uncle Sam sees the benefit. You can’t do anything without Uncle Sam taking a huge bite of it.”

And what about the monster inside Vince McMahon? Will it ever be satisfied by his success? “I have a voracious appetite, for life and ¬everything in it,” he says. “To a certain extent I will die a very frustrated man because I didn’t do this or accomplish that.”