On the 24th, WWE released a short statement about McMahon pawning part of WWE:
On March 24, 2020, Vincent K. McMahon (“Mr. McMahon”), Chairman and Chief Executive Officer of World Wrestling Entertainment, Inc. (the “Company”), entered into a variable prepaid forward contract with an unaffiliated bank (the “Bank”) covering approximately 3.5 million shares of the Company’s Class B common stock. The variable prepaid forward contract is scheduled to settle on specified dates in March 2024, at which time the actual number of shares of the Company’s Class A common stock to be delivered by Mr. McMahon will be determined based on the price of the Company’s Class A common stock on such dates, with the aggregate number not to exceed approximately 3.5 million shares, which is the number of shares of Class B common stock pledged by Mr. McMahon to secure his obligations under the contract. Subject to certain conditions, Mr. McMahon can also elect to settle the variable prepaid forward contract in cash and thereby retain full ownership of the pledged shares.
Mr. McMahon entered into the variable prepaid forward contract to provide current liquidity while allowing him to maintain voting and ordinary dividend rights in the stock, as well as the ability to participate in future stock price appreciation, during the term of the contract and thereafter if Mr. McMahon settles the variable prepaid forward contract in cash.
The shares covered by the variable prepaid forward contract represent approximately 4.5% of the Company’s total outstanding shares of Class A and Class B common stock. The variable prepaid forward contract does not apply to the approximately 25,198,344 other shares of Class B common stock beneficially owned by Mr. McMahon. Those shares represent approximately 70.5% of the Company’s total voting power. The variable prepaid forward contract contains a 60-day lock-up restricting Mr. McMahon’s ability to sell or transfer additional shares of the Company’s common stock during such period without the Bank’s prior approval. Mr. McMahon has informed us that he intends to continue in his capacity as the Company’s Chairman and Chief Executive Officer for the foreseeable future.
Meltzer seemed puzzled by what happened, so here is my attempt to explain:
Vince McMahon evidently wanted/needed cash, so he secured a loan from a bank of a set amount, but instead of a set asset for security, the term of the loan was made to look like a purchase of a variable number of shares, the number of shares being determined at the end of the loan term in 2024. However, the bank cannot collect any more than 3.5M shares, even if said number does not cover the amount of the original loan. Vince McMahon reserved the right to pay back the loan and thus not having to “sell” shares to the bank in 2024.
Why this is done: it’s a way for McMahon to keep from looking like he had to borrow money - he is theoretically selling futures on his own pile of stock, but instead of writing a futures contract to put on the futures market, there is only one buyer (the “bank”) allowed. This is the part that I think Meltzer stumbled over.
Why did McMahon do this? Well, it depends on how conspiratorial and dark you want to conjecture. Scenario: Trump needs money, calls up Linda McMahon (who heads one of the major Trump PACs to funnel money, including from dubious sources), who then tells Vince to raise some money. Though that would make a great movie, I suspect that is not really what is happening.
Instead, I suspect that the cancellation of the XFL season has left the XFL financially vulnerable, but Vince didn’t want to go to the bank as XFL needing a loan, because that would hurt the credit of the XFL. Or perhaps Vince did try to find a loan for the XFL but found that lenders wouldn’t bite.
How much did Vince get from the bank? Well, at 3.5 million shares times the (before trading ended) price of say $39, that would be $140M give or take. But a bank will be smarter than that, realizing the price can go down. Plus the bank has to figure in things like the cost of money to them for four years, etc.
Will this hurt WWE? Well, after market the shares did fall. Time will tell how this ends, but in general I think WWE is not as valuable as some like to think.
