Every year, WWE files a “Notice of Annual Meeting of Stockholders and Proxy Statement“. The document might sound boring, but for those interested in understanding the business of World Wrestling Entertainment and what motivates the executive WWE officers, there’s rich material within.

Some things you learn:

I. Kevin Dunn is the highest paid executive officer for 2015

On page 14, WWE named their “executive officers for 2015”:

  • Vincent K. McMahon (Chairman & Chief Executive Officer)
  • Michelle D. Wilson (Chief Revenue & Marketing Officer)
  • George A. Barrios (Chief Strategy & Financial Officer)
  • Paul Levesque (EVP, Talent, Live Events & Creative)
  • Kevin Dunn (Executive Producer & Chief Global Television Production)

Last year, on page 14, the “named executive officers for 2014” were:

  • Vincent K. McMahon (Chairman & Chief Executive Officer)
  • George A. Barrios (Chief Strategy & Financial Officer)
  • Paul Levesque (EVP, Talent, Live Events & Creative)
  • Kevin Dunn (Executive Producer & Chief Global Television Production)
  • Michael J. Luisi (President, WWE Studios)

It was the same group of five (Vince, George, Paul, Kevin and Michael) in 2013. The list in 2012 was the same of 2015.

It’s interesting to see Levesque’s prominent role (a consistent factor since he became an executive officer in August 2011) among the named executive officers while Stephanie (who is the “Chief Brand Officer”) is not on this list. Stephanie is still an important member of the corporate team and serves on the WWE’s Board of Directors. Last year, she earned $1,738,950 in compensation from WWE.

I think this also speaks to the important role that Kevin Dunn, who has worked for WWE since 1984. Dunn’s 2015 salary was about $860,000. However, he received in excess of $3 million in stock awards last year. That put Dunn’s total compensation for 2015 at $4,758,170. That’s the highest among the named executive officers – higher that Vince McMahon ($3.3 million), Michelle Wilson ($4.5 million), George Barrios ($4.5 million) and Paul Levesque ($3.1 million).

II. Shane McMahon will earn more $100k and Triple H’s contract expires before WrestleMania

On page 32, under “Certain Relationships and Related Transactions”:

Shane B. McMahon is the son of Vincent McMahon and brother of Stephanie McMahon. Shane McMahon is a former executive officer and performer with the Company. In 2016, Shane McMahon returned as a performer for the Company. While no agreement has been reached at this time, the Company anticipates that Shane McMahon will receive in excess of $120,000 for these services which will be disclosed in next year’s proxy statement.

This is an intriguing disclosure.

First of all, it notes that “no agreement has been reached at this time”. Second, there’s no hints that Shane is returning as a corporate officer – instead he’s merely a “performer”. And lastly, it suggests that his value for television appearances and a WrestleMania match is over $100,000. It’s unclear whether this would be inclusive of subsequent post-WrestleMania appearances should Shane actually win in Hell in a Cell against the Undertaker.

In a surprising note, the proxy statement notes that Triple H’s booking agreement (for he is “an independent contractor”) includes a guaranteed annual payment of $1,000,000 and “currently runs until March 30, 2016”. Of course, WrestleMania 2016 is on April 3, 2016. That means, technically the WWE World Champion has a contract which expires this month. However, we are assured that WWE is “contemplating extending this agreement on the same terms and conditions for an additional three years after its current term ends.”

III. WWE Network and International Growth were key elements WWE executives were measured on

On page 18, the four strategic factors for the annual management incentive plan are laid out:

  1. Grow the WWE Network (40% weight)
  2. Drive International Growth (40% weight)
  3. Brand Strength (10% weight)
  4. Business Development (10% weight)

WWE Network

The first component, “Grow the WWE Network” is measured on “number of WWE Network’s subscribers” and “subscriber satisfaction”.

It says a lot that WWE Network numbers are the top priority for the WWE’s management team.

As WWE noted in their Q3’15 earnings, “Over the next few years, WWE management anticipates that the contractual escalation of television rights fees and the acquisition and retention of WWE Network subscribers will be the key drivers of revenue growth for the Company.

While we’ve seen WWE Network numbers climb year-over-year, there is a general plateau from post-WrestleMania through the end of the year. Furthermore, we’ve seen consistently high churn numbers with 2015 quarterly average of -393,000.  Yet, WWE has continuously claimed very high WWE Network satisfaction numbers, usually in the 90% range.

wwe_network_avg_subs

As noted on the latest Wrestlenomics Radio podcasts, it’s clear that WWE is in a subscriber acquisition mode. While the funding for the MIP is somewhat determined by profitability (strategic milestones is 30%, Revenue is 30% and OIBDA 40%), overall WWE is relying on their guaranteed and annually escalating television rights deals.

International Growth

International Growth is an interesting target. WWE has been growing their non-North America revenue.

WWE International Revenue

  • 2015: $169.8 million with $75.7 million from the U.K.
  • 2014: $116.4 million with $40.5 million from the U.K.
  • 2013: $116.3 million with $36.0 million from the U.K.
  • 2012: $118.1 million with $34.0 million from the U.K.
  • 2011: $133.4 million with $33.2 million from the U.K.
  • 2010: $135.3 million with $33.9 million from the U.K.

While 2015 was a good year for international attendance (7,300 per show up from 6,200 per show in 2014), as noted in the WWE’s annual report for 2015, the primary drivers of growth for the international business is the, “Global expansion of WWE Network and television distribution”.

To that end, distribution of the WWE Network worldwide is nearly complete.

Timeline of WWE Network Expansion

  • 02/24/14: WWE Network launches in the United States
  • 08/12/14: WWE Network launches in 140 countries including Canada
  • 01/13/15: WWE Network launches in the United Kingdom and Ireland
  • 03/23/15: WWE Network launches in the Middle East on OSN
  • 07/07/15: WWE Network launches in Italy
  • 07/15/15: WWE Network launches in Malaysia on Astro
  • 11/02/15: WWE Network launches in India
  • 01/05/16: WWE Network launches in Japan, Germany, Austria and Switzerland
  • 03/01/16: WWE Network launches in Thailand and the Philippines

In just under two years, the WWE Network is ostensibly available almost everywhere in the world except in China.

That last step is going to be hard. Reading YOU On Demand’s CEO Mingcheng Tao’s recent comments underscores the challenges of breaking into that market. As Seeking Alpha noted, “Foreign entities (and Sino-foreign joint ventures) continue to be prohibited from operating online publishing services and engaging in content distribution.”

At the same time, it will be interesting to see how much room there is for WWE international growth. The major television deals are mostly locked in for the next few years (and some have caused financial headaches as some distributors have refused to pay.) It’s questionable whether WWE can still count on emerging markets (such as India) to continue to pay hefty fees at the next renewal, especially if there are any lingering ill feelings over the timing of launching the WWE Network service as an over-the-top service.

WWE could do more international touring (especially utilizing the NXT brand), but the higher ticket prices come at the expense of higher costs. Expanding international merchandising (such as utilizing Amazon UK) was a smart move in 2015.

As of 12/31/15, the number of paid WWE Network subscribers outside of the United States was less than a quarter of the total amount. WWE will need to target specific strategies for growing the WWE Network outside of the U.S. This may include more localization and language options, pricing adjustments, in-market advertising and additional recruitment and promotion of international talent.

There was a significant uptick in international revenue in 2015. A large part of that growth came from the WWE Network international expansion to key markets such as the United Kingdom. However, we’ve seen international strategies come and go as places such as Asia, Latin America/Mexico, China, India and Europe have been prioritized and subsequently deprioritized.

Year-after-year international growth will require long-term strategic vision to put the right infrastructure and offerings in place. A lot of that would likely fall on the shoulders of WWE President of International Gerrit Meier. The team is being measured on ” licensing and advertising/sponsorship revenue.”

Brand Strength

It may surprise people to discover that “brand strength” is only worth 10% considering it is measured by “certain television ratings and social media metrics.” In 2015, WWE live ratings tumbled. Meanwhile, WWE has incessantly trumpeted the horn of YouTube views and Social Media Followers. Yet, overall, this is only a small component on their strategic rating.

Vince McMahon told investors and analysts, “We are not like looking at it that way of old school. We are looking at it from the standpoint of a total ecosystem which as you can see is extremely strong for us. It was not just about television ratings which we used to before new media, you used to live and die by it.

It’s clear from this document that WWE still considers both television ratings and social media metrics, but it’s also clear from the weighting that WWE Network and International Revenue are consider far more important factors.

Business Development

The Business Development component is measured on “revenues from new product initiatives and new plans for initiatives.” WWE isn’t afraid of spending some money to invest in other projects such as Tout or the never-ending saga of the WWE Studios division. Still, it’s unlikely we’ll see another World Bodybuilding Federation or XFL anytime soon. Last year WWE did enter into a joint venture with ABG to relaunch the TapouT brand as a “lifestyle fitness apparel brand“. At only 10% weighting on the overall plan, it certainly suggests we’d continue to see “new product initiatives” in 2016 in some form.

IV. It’s still unclear who will replace Vince

On page 8, under “Board Structure and Risk Management”, the proxy statement notes:

Mr. McMahon serves as both our Chairman and Chief Executive Officer. The Board believes that the unique blend of creativity, entrepreneurship and management skills required to act as Chief Executive Officer at the Company would make filling this position extremely difficult. As a practical matter, Mr. McMahon’s combined role as Chairman and Chief Executive Officer reflects the larger reality that as the owner of a majority of the Company’s voting power, management of the Company is within his ultimate control.

McMahon’s “amended and restatement employment agreement” has a term ending December 31, 2016, “but automatically extends for successive one-year periods unless either party gives notice of nonextension at least 180 days prior to the expiration date.” Essentially, Vince’s contract rolls over every year.

The agreement does note that:

If Mr. McMahon dies or becomes disabled (as defined in the agreement) during the term of his agreement, or if we terminate Mr. McMahon’s employment for cause or if he resigns other than for good reason following a change in control, we are obligated to pay him (or his estate, as applicable) compensation and benefits accrued but unpaid as of the date of termination. The agreement also contains confidentiality covenants and covenants that, among other things, grant to the Company intellectual property ownership in his ideas, inventions and performances and prohibit him from competing with the Company and its affiliates in professional wrestling and our other core businesses during employment and for one year after termination.

No one exactly who would take over in the event Vince died. I’ve speculated in other articles that Linda would likely come back as a transitional leader. While Paul Levesque and Stephanie McMahon are certainly rising stars in the WWE empire, their inexperience with Wall Street makes some investors and analysts wary of turning the whole organization over to them. As noted before, it would be tough to have a single person running the company as both Chairman and CEO. I would imagine that those roles might be split into two positions for future leaders of the organizations.

If WWE business analysis is your cup of tea, I highly recommend reading this latest filing.

Chris Harrington is a writer who covers the business of professional wrestling. See his work at indeedwrestling.com and wrestlenomics.com and listen to his Wrestlenomics Radio podcast at Voices of Wrestling. Follow him on Twitter at @mookieghana