The investigation into allegations of misconduct leveled against former WWE Chairman and CEO Vince McMahon and former WWE Talent Relations head John Laurinaitis has now been concluded by the Special Committee.
WWE has stated that the Special Committee investigation “could result in a material adverse effect on our financial performance,” and that McMahon’s resignation “could adversely affect our ability to create popular characters and creative storylines or could otherwise adversely affect our operating results.”
During today’s earnings call for the third quarter of 2022, WWE President and Chief Financial Officer Frank A. Riddick stated that the investigation that was started earlier this year has now been completed.
Riddick did not name Laurinaitis, but he did say that the investigation into McMahon and another former executive has been completed, and the committee that was formed to conduct the investigation has been disbanded. Riddick did not name Laurinaitis.
It was mentioned that the WWE Board of Directors is currently working in collaboration with management in order to put the committee’s recommendations into action. Riddick stated that they anticipate taking on additional costs related to the investigation going forward and that this is something that they are planning for. In addition, he reemphasized the fact that McMahon has consented to pay any and all reasonable costs associated with the investigation that are not covered by insurance.
WWE addressed the Special Committee investigation during a new SEC filing related to the earnings report. The filing began with comments related to litigation, and then it continued with a lengthy statement on the investigation, McMahon, and his resignation.
The following comments were included by WWE in a section of the filing that was related to pending lawsuits:
“As previously announced, a Special Committee of independent members of the Company’s Board of Directors (the “Special Committee”) was formed to investigate alleged misconduct by the Company’s former Chairman and Chief Executive Officer, Vincent K. McMahon. Mr. McMahon resigned from all positions held with the Company on July 22, 2022 but remains a stockholder with a controlling interest. Although the Special Committee investigation is now complete, the Company has received, and may receive in the future, regulatory, investigative and enforcement inquiries, subpoenas or demands arising from, related to, or in connection with these matters.”
In addition, the following statement was included in the filing with the SEC:
“The Company’s recent Special Committee investigation could result in a material adverse effect on our financial performance.
On June 17, 2022, the Company and its Board of Directors announced that a special committee of independent members of our Board of Directors (the “Special Committee”) was formed to investigate alleged misconduct by the Company’s former Chairman and Chief Executive Officer, Vincent K. McMahon. Mr. McMahon resigned from all positions held with the Company on July 22, 2022 but remains a stockholder with a controlling interest. On July 25, 2022, based on the findings of the Special Committee investigation, the Company announced that it had determined that certain payments that Mr. McMahon agreed to make during the period from 2006 through 2022 (including amounts paid and payable in the future totaling $14.6 million) were not appropriately recorded as expenses in the Company’s Consolidated Financial Statements. The Company subsequently identified two additional payments totaling $5.0 million, unrelated to the alleged misconduct by Mr. McMahon that led to the Special Committee investigation, that Mr. McMahon made in 2007 and 2009 that were not appropriately recorded as expenses in the Company’s Consolidated Financial Statements. Together, these unrecorded expenses total $19.6 million (the “Unrecorded Expenses”). All payments underlying the Unrecorded Expenses were or will be paid by Mr. McMahon personally. The Company has determined that, while the amount of Unrecorded Expenses was not material in any individual period in which the Unrecorded Expenses arose, the aggregate amount of Unrecorded Expenses would be material if recorded entirely in the second quarter of 2022. Accordingly, the Company revised its previously issued financial statements to record the Unrecorded Expenses in the applicable periods for the years ended December 31, 2019, 2020 and 2021, as well as the first quarter of 2021 and 2022. In light of the Unrecorded Expenses and related facts, the Company has concluded that its internal control over financial reporting was not effective as a result of one or more material weaknesses. Although the Special Committee investigation is now complete, the Company has also received, and may receive in the future, regulatory, investigative and enforcement inquiries, subpoenas or demands arising from, related to, or in connection with these matters. Professional costs resulting from the Special Committee’s investigation have been significant and are expected to continue to be significant as we continue to incur litigation costs relating to these regulatory, investigative and enforcement inquiries, subpoenas and demands. Although we believe that no significant business has been lost to date, it is possible that a change in the perceptions of our business partners could occur as a result of the investigation. In addition, as a result of the investigation, certain operational changes, including without limitation personnel changes, have occurred and may continue to occur in the future. Any or all of these impacts based on the findings of the investigation and related matters and the surrounding circumstances could exacerbate the other risks described herein and directly or indirectly have a material adverse effect on our operations and/or financial performance.
The resignation of Vincent K. McMahon could adversely affect our ability to create popular characters and creative storylines or could otherwise adversely affect our operating results.
Until he resigned from all positions held with the Company on July 22, 2022, in addition to serving as Chairman of our Board of Directors and Chief Executive Officer, Mr. McMahon led the creative team that develops the storylines and the characters for our programming (including our television, WWE Network and other programming) and live events. On July 22, 2022, the Board appointed Stephanie McMahon, at that time Chief Brand Officer, interim Chief Executive Officer, interim Chairwoman and a director of the Company, and Nick Khan, at that time President, Chief Revenue Officer and a director of the Company, to serve as the Company’s co-Chief Executive Officers. The Board has also appointed Stephanie McMahon to serve as the Company’s Chairwoman. Furthermore, in the wake of Mr. McMahon’s departure, our creative effort will be led by Paul Levesque, the Company’s Executive Vice President, Talent Relations and Creative and Ms. McMahon’s husband, who has decades of experience in our Company and has been an important player in all aspects of our creative process, including television, talent and live events. Although Mr. Levesque has extensive practical experience with many of our revenue streams and, with Ms. McMahon, has been critically involved in our business transformation over the past several years as well as our continuing brand development, these collective changes at the top of our organization are extensive”
These are very similar to the comments that were made in a filing with the SEC back in August.
As a result of the statement that “Mr. McMahon can effectively exercise control over our affairs,” speculation began to circulate about the possibility of McMahon going back to work for the company. According to Fightful Select, a WWE spokesperson stated that McMahon is “done, done,” and that he will not be returning to the roles that were filled a few months ago following his retirement. Also, the spokesperson confirmed that McMahon will not be filling the roles that he vacated following his retirement.
It was noted that another WWE higher-up pointed out how the company morale from the last few months has been the highest they’ve seen it in more than a decade since they’ve been around. This was a statement that was made in response to a comment made by another WWE higher-up. Another longtime employee of WWE stated that while they had initial reservations, hesitations, and fears regarding Vince’s departure and a potential quick return, those feelings have since changed and no longer apply to the situation. The source went so far as to say that everyone in charge is aware that a return would be a significant setback for WWE, and that today’s filing instilled even more confidence in those who thought that McMahon leaving would be a blow to the company.
