WORLD WRESTLING ENTREPRENEUR: WWE Wrestling

WORDS BY CHRISTIAN SYLT ILLUSTRATION BY ROBERT HOARE

World Wrestling Entertainment specializes in staging rigged fights, but its business model doesn’t pull any punches.

The concept behind World Wrestling Entertainment (WWE) seems far from a sure-fire hit. Fixing matches between muscular men coated in baby oil and dressed in clown-like costumes doesn’t sound like it would appeal to anyone, let alone be a lucrative business. But this is what 1.6 million people watched live last year when they attended shows staged by WWE, a firm valued at about $800 million on the New York Stock Exchange.

This could only happen in America, critics cry, but WWE is broadcast in 15 languages to over 100 countries worldwide, and in 2005 it will stage 47 international events—more than it has ever hosted. According to the WWE’s corporate overview, its international revenues have increased at a compound annual growth rate of 28.1% from 2002 through 2004 to represent around 17% of the company’s total turnover. Within a few years, WWE wants this international component to increase to 25%… and that isn’t out of reach. Behind the company’s ludicrous storylines lies a real knockout of a business model.

Trish Stratus pulls Lita’s legApril’s WWE Wrestlemania event took place before a sell-out crowd at Los Angeles’ world-renowned Staples Center with all the glitz and glamour of a Hollywood movie premiere. Wrestlemania is WWE’s annual flagship event, and Sylvester Stallone, Donald Trump and Mike Tyson have all had a hand in helping to promote it. Back in March it was announced that Chicago would host next year’s show after beating several other cities in a fierce bidding war. But the benefits justify the battle.

In 2004, Wrestlemania was held at New York’s Madison Square Garden, and according to Enigma Research Corporation, it brought in $13.5 million of new economic activity to New York City as well as creating the equivalent of 96 full-year jobs. Of its 18,000 attendees, 86% came from outside New York’s five boroughs, and each spent an average of $555 on goods and services while visiting the city. The remaining $5.6 million of economic activity resulted from WWE’s operational spending on hotels, catering, security and production for the event. All this for an event that only lasts a few hours. The secret is its stars.

Paul London performs a
drop kick on his opponents

Shawn Michaels, Undertaker and Big Show are heroes to children around the world, but for the WWE they’re just three of the 150 performers on its books. They’re rewarded with six-figure salaries for working 16 days each month, but doing their jobs well means that matches must appear to be the opposite of what they are. Vince McMahon, the WWE’s colorful chairman, coined the term “Sports Entertainment” in the ’80s to refer to his brand of wrestling, and it couldn’t be more apt. The WWE’s scriptwriters decide the outcome of every match, but by performing seemingly unfeasible stunts, it is the wrestlers who convince the crowds that the contest is genuine.

Big Show lifts
Kurt Angle’s spiritsScriptwriters “promote” wrestlers based on their athletic prowess and crowd interest in the character they have creative control over. The crucial catch is that WWE keeps the intellectual property rights to the characters. But whether cheering or jeering, if fans have enough interest in a character they’ll buy the merchandise, watch the pay-per-view shows and come to the live events. In short, they’ll make money for the WWE and so to provoke a reaction, the more extreme the character (be they bad or good), the better.

The top wrestlers not only get to wear the coveted belts which are akin to company Oscars, but they also get more airtime on TV. This in turn drives merchandise, pay-per-view and event gate sales. The simple incentive for the wrestlers is that they get around a percentage of merchandise and ticket sales. So it’s no surprise that the wrestlers whip crowds into a frenzy since they stand to gain a lot.

According to the WWE’s corporate overview, in 2004, tickets for live events totalled around $70.2 million and revenues from merchandise brought in a further $78.8 million. The lion’s share of this goes to the WWE and little is diluted since it makes its own merchandise and has an in-house scriptwriting and creative team to conjure up catchphrases and slogans for the characters.

“Listening to the audience is a secret of our success,” he says adding that the WWE has developed techniques to “precondition” the crowd. So for example, if merchandise sales of a fan-favorite character are slumping, the WWE might mock-up a “spy-camera-style” video of the wrestler speaking abusively about the crowd and play this before his match begins. The crowd reacts accordingly, and McMahon affirms, “We see that reflected in merchandise sales.” But the WWE takes manipulation to an even greater level of detail.

McMahon attends every televised event from his mobile office (nicknamed the “guerrilla position”) hidden behind the entrance to the ring area. He watches the progress of every match from a bank of monitors and, more importantly, he studies the crowd’s reaction. McMahon is also in constant voice contact with the referee through a hidden earpiece, and if a wrestler becomes injured during a match, he can adjust the program schedule and tell the referee to make a quick count to hastily end the match. Similarly, depending on the crowd’s response to the wrestlers, McMahon can swing the result of a match by ordering a quick count the next time a wrestler falls to the mat.

“The audience is like a test group every night,” says McMahon, explaining that he listens to when it is cheering and booing and even how loud it is. “As long as you’re listening at the right times, you can give them what they want,” he adds. This method is even used to trial different storylines so the scriptwriters can develop the most popular themes. “You can’t dictate to the audience,” says McMahon. “Present them with a selected menu and see which one they gravitate to,” is his recipe for pulling in viewers. And although the WWE’s storylines always have a heady mix of sex, violence and rock music, its templates aren’t the tabloids, but rather McMahon himself.

Rey Mysterio descends
on The Basham Brothers

“One of the greatest assets to the company is that I’m truly middle class. As a child I loved to fight and was always in trouble, but that helped me because I understand middle-class values,” says McMahon. He is still hands-on with the writing of WWE storylines, along with his daughter, Stephanie, who heads up the creative team. This gives the WWE an appealing quality that viewers relate to, as McMahon’s whole family play caricatures of themselves in WWE plots.

Both Stephanie and her brother Shane have played roles in onscreen, staged family conflicts—while Shane actually runs the WWE’s New Media division. Vince’s wife Linda is WWE’s chief executive, but one racy storyline saw her sedated in a private nursing home while her husband had an affair with a younger woman.

Industry insiders note that the dysfunctional family is one of the strongest storylines in the WWE and could be used even more to raise ratings. And although these plots are pure fiction, the boundaries between reality and the WWE’s onscreen antics became blurred when McMahon stepped into the ring in November 1997. The 58 year old took on the persona of the evil Mr McMahon, the tyrannical tycoon, and since then he has had a litany of injuries including a broken tailbone and fractured wrist. McMahon must be one of the most physically active executives alive, but wrestling has been his lifelong love.

“I always wanted to perform and my dad wouldn’t let me,” he says. Born in rural North Carolina, McMahon was raised by his mother and a series of stepfathers. He met his father, wrestling promoter Vincent James McMahon, when he was 12.

The elder McMahon owned a regional wrestling company that promoted its events from Baltimore to Bangor. On visits from Fishburne Military School, teenage Vince watched his father run wrestling matches at Madison Square Garden and fell in love with the family business.

“This business has always been about fun, and when you’re around these larger-than-life guys, it’s a riot. I naturally gravitated to it,” McMahon says. Back then, promoters divided the nation into territories, each agreeing not to tread on another’s turf. But the younger McMahon had national ambitions. He convinced his father to sell the business to him and his wife in 1982 for $1 million.

Batista shows
Chris Benoit who’s boss

The young couple made the four quarterly payments of $250,000 in part by expanding in ways the elder McMahon opposed, such as syndicating matches to television in other promoters’ regions.

By the mid-’80s, McMahon had swept away nearly every competitor, adding pay-per-view events to his line-up and creating a kid-friendly roster of cartoon-like wrestling characters, such as the Ultimate Warrior and Jake “The Snake” Roberts, who helped sell children’s breakfast cereal and action figures. McMahon also made the bold move of admitting that the company’s plots were built in advance and the outcomes predetermined.

McMahon’s announcement liberated wrestling from dealing with complicated licensing fees and costly state athletic commissions. He made the WWE’s focus even more emphatic in 1989 just as the New Jersey Senate was deciding whether to remove wrestling from the jurisdiction of the state athletic commission (which levies a 10% surtax on profits from TV revenues). The WWE declared in a statement that wrestling should be defined as “an activity in which participants struggle hand-in-hand primarily for the purpose of providing entertainment to spectators rather than conducting a bona fide athletic contest.”

This opened the floodgates to more fantastical storylines, as up to then, “the business was built more around trying to convince the public that this was real as opposed to entertaining the public,” says McMahon. The empire took even bigger strides in 1999 when WWE declared its intention to become a publicly held company by offering approximately $170 million in class A stock, earning it a NASDAQ listing. It moved to the New York Stock Exchange a year later.

McMahon’s family owns 70% of WWE’s outstanding shares, and known for controversial comments about Wall Street, he believes that “officers of a company should be paid on profits, not market cap, because that can be artificially inflated.”

McMahon puts his money where his mouth is, since WWE made a gross profit of $168 million on total revenues of $374 million in 2004, and the company’s intellectual property assets are the key source of this healthy profit margin. It also balances its business between technology, cost and labor-intensive tours (requiring over 150 staff per event) and high added-value pay-per-view services.

In fact, WWE is the world’s largest provider of pay-per-view event revenue, with its 12 events in 2004 being bought by a massive total of
5.6 million people, bringing the company $95.3 million of revenue. And WWE is used to leading the sector since, as McMahon is keen to comment, “There’s nothing like it anywhere in the world.”

In 2001, WWE purchased the intellectual property and certain other assets of its main rival, Time Warner’s World Championship Wrestling, for a reputed $2.5 million after the company reportedly lost $60 million the previous year. It then absorbed the popular Extreme Championship Wrestling outfit two years later. The skies are clear for McMahon, and he admits, “We have no major competition.”

The company even survived a name change from World Wrestling Federation (WWF) after losing a High Court battle with the UK’s World Wide Fund for Nature in 2002. The identity change hasn’t dented the company’s continued roll-out across the world’s TV networks.

Nonetheless, McMahon knows the company’s strength lies in its origins. He explains that when WWE traveled to Japan, translators got booed out of the ring because the crowds wanted to hear the American voices even though they couldn’t understand them. This is one of the company’s best-known business secrets, and it is becoming ever-more important since, as McMahon boasts, “America’s greatest export is WWE.”

© 2005 World Wrestling Entertainment, Inc. All Rights Reserved.