My favorite as a kid was Chief Jay Strongbow. I also liked the champ, Bruno Sammartino.
This was long before the "sport" of professional wrestling became so flashy. It was always gimmicky, but the sport became far flashier and far more gimmicky in the 1980's after what was then the World Wrestling Federation changed hands in 1982. At that point, I used to like to watch Jimmy "SuperFly" Snuka.
All three of those wrestlers had one thing in common. They all came back after being retired.
The company is now known as World Wrestling Entertainment (WWE) . And the man whose business purchased the WWF back in 1982 and guided that business through many changes for about 40 years wants to come back. I am sure that you have seen the headlines.
He's Baaack...
Vince McMahon had retired as the CEO of World Wrestling Entertainment this past July amid investigations of claims of sexual misconduct against him. It had been learned at that time that McMahon had agreed to pay more than $12M in settlements secretly to his accusers.
The SEC launched an inquiry into these payments and the company ultimately disclosed additional payments unrelated to any current allegations that were made years earlier totaling $5M. Just an FYI, new allegations made by two additional women made the news as recently as last month.
Now, McMahon has made news again.
The 77 year-old former CEO still has majority voting power within the company by virtue of his Class B stock, and sent a letter to WWE's Board of Directors late in December informing them in detail of his desire to return to the company as executive chair while placing two former co-presidents, Michelle Wilson and George Barrios, on the Board.
To get this done, three current Board members must lose their positions and for McMahon to ascend to the role of executive chair requires Board approval.
Messy.
Why?
McMahon, whose daughter Stephanie became Chair and co-CEO in his absence, would like to guide a strategic review as he thinks there is now a narrow window to launch a potential process to make a sale of the business as the media rights to the WWE are about to enter into renegotiations. Top programs include "Raw" and "SmackDown."
The Board had apparently responded to McMahon's letter that it would be receptive to a review and would work with him on that review. However, the Board is in agreement that McMahon's return to the company would not be in the best interest of the shareholders.
There are also discussions over whether or not he will repay the company for expenses incurred as a result of the investigations into his conduct. Remember though, he can elect himself.
Corporate Performance
WWE does not report earnings or another month or so. Wall Street is looking for EPS of $0.59 for the fourth quarter on revenue of $333M. That would amount to earnings "growth" of -15.7% on revenue growth of 7.5%. These numbers would also represent a fourth consecutive quarter of slowing of year-over-year earnings growth and year-over-year revenue growth.
Away from earnings, operating cash flow has been steady, as free cash flow has remained positive. I have no problems with the balance sheet. The company runs with a current ratio of 1.46. Cash dwarfs debt. There are no intangible assets claimed that enlarge the asset side of the balance. The balance sheet is simple, clean and of solid quality.
The Stock
Readers will see that on this (Friday's) morning's pop, WWE stock has moved away from testing the bottom line of our regression model as well as its own 200-day SMA (simple moving average). The shares suddenly trade above the model's central trendline, and have retaken their 21-day EMA (exponential moving average) and 50-day SMA forcing relative strength up to the brink of an overbought reading and rescuing the daily Moving Average Convergence Divergence (MACD) oscillator from what had become a very negative look.
I am fairly certain that I do not want to buy this stock today after this move and after having created a very large gap that still may have to be filled. Keeping in mind that earnings are due in a month and that it may take a while for McMahon to get done what he wants to get done, I think the less risky approach would be to sell equity risk at a discount.
WWE options do not trade well, so one may have to be patient and try to work any order. That said, the February 17 $75 WWE puts are trading at $2.05 with a $1.10 bid.
Need more room?
The April 21 $70 WWE puts are trading at $1.99 with a $1.35 bid. Food for thought.
Worst case? The trader ends up buying the equity at a net basis close to where it bottomed in late December.
Best case? The share price never comes in and the trader pockets the premium.
