Freefall of WWE stock costs McMahons $500M

Republican U.S. Senate candidate Linda McMahon talks with state Rep. Livvy Floren, R-149th District, at the campaign's Norwalk field office July 14, 2012, during her "Super Saturday" blitz, an outreach initiative with the goal of making 10,000 phone calls and knocking on 10,000 doors in a single day. less Republican U.S. Senate candidate Linda McMahon talks with state Rep. Livvy Floren, R-149th District, at the campaign's Norwalk field office July 14, 2012, during her "Super Saturday" blitz, an outreach ... more Photo: Autumn Driscoll Photo: Autumn Driscoll Image 1 of / 21 Caption Close Freefall of WWE stock costs McMahons $500M 1 / 21 Back to Gallery

She's the candidate with her own ticker symbol: WWE.

But Wall Street is not nearly as bullish about World Wrestling Entertainment as the at-times fawning Republican base has been here in Connecticut about Linda McMahon, the company's former chief executive and repeat contender for U.S. Senate.

Since McMahon's first run two years ago, WWE's stock price has plunged from $18.64 to $7.86 per share, hurting not just garden variety investors but also the first family of wrestling, which owns 46 million of the wrestling empire's 75 million shares on a fully diluted basis.

That translates to a loss of a half-billion dollars, 10 times more than the $50 million McMahon spent the last time on her unsuccessful candidacy.

The market cap of the Stamford-based company, which is defined as the total value of tradeable stock shares, has also been cut in half, going from $1.27 billion to $585 million.

And the long-awaited debut of a 24-hour WWE cable television network has not taken place.

Is this tide of trouble a testament to or a knock on the corporate stewardship of McMahon, whose whole campaign narrative is that Washington could use an adroit businesswoman like her and not another career politician?

And furthermore, is it a consequence of media scrutiny of the WWE in the context of not one but two nationally watched political races, or perhaps due to the WWE's metamorphosis from tawdry soap opera to what some say the Disney-fication of its programming?

"To me, it's indicative that maybe the McMahons care more about winning this Senate seat than their shareholders," said Peter Schiff, the brash money manager and talking head from Weston who lost a three-way Republican Senate primary to McMahon in 2010.

A frequent guest on CNBC and Fox Business Network who runs the Westport-based brokerage firm Euro Pacific Capital, Schiff has endorsed McMahon's opponent in the Aug. 14 GOP primary, former Congressman Christopher Shays.

"You can argue that once she decided to run for office, they tried to clean up the WWE," Schiff said. "They took out some of the more sexual stuff and they might have lost their appeal."

After offering to arrange a telephone interview with McMahon Thursday, her campaign spokesman Tim Murtaugh pulled the plug on it once he learned that the subject matter was going to be the WWE.

"Linda no longer works for WWE," Murtaugh wrote by email to Greenwich Time. "If you want to talk about the company, you should call them."

Murtaugh subsequently released a statement Friday to the newspaper heralding McMahon's tenure at the WWE, which ended in September 2009 when she ceded the reins of the company to her husband, Vince McMahon.

Murtaugh used the opportunity to take a swipe at former U.S. Rep. Christopher Murphy, D-5th District, the favorite to face McMahon in the general election.

"Linda built a successful business from the ground up," Murtaugh said. "She went from sharing a desk with her husband to employing more than 600 Connecticut residents. This is in stark contrast to Chris Murphy, who has created no jobs in the private sector."

Murphy spokesman Ben Marter railed on McMahon's corporate record.

"McMahon's attacks are just designed to distract voters from her miserable record of mistreating her employees and shipping jobs overseas," Marter said.

WWE brass attributed the lackluster performance of the company's stock, which analysts told the newspaper pays a handsome annual dividend of 60 cents per share, to a confluence of factors that included the uncertainty over television network launch and losses on film projects such as "The Reunion," "Bending The Rules" and "That's What I Am."

They dismissed that their business has been hurt by the growing popularity of mixed martial arts programming such as the Ultimate Fighting Championship or a paradigm shift to PG-rated content.

"Obviously, you know correlation is not causation regarding Linda's tenure here," said George Barrios, the company's chief financial officer.

Barrios boasted that the wrestling conglomerate earned $94.6 million before interest, taxes, depreciation and amortization just two years ago after McMahon resigned as CEO.

"The most profitable year in the company's history was 2010," Barrios said. "I'm not sure your thesis holds up."

Schiff isn't touching the stock, however.

"To me, the chart looks pretty bad," Schiff said. "If you look at how (President) Obama is going after (Mitt) Romney on Bain Capital, clearly they'll go after Linda on the WWE."

Bradley Safalow, founder of Please Act Accordingly, otherwise known as PAA Research, an independent investment advisory firm based in New York City, said the communication between the WWE and its shareholders about the status of the languishing television network has been poor.

"The company is spending tens of millions on the launch and it has yet to find a distribution partner," said Safalow, who also identified film project losses as a drag on the stock.

Despite all that, Safalow has a "buy" rating on WWE stock, which has a dividend/yield of 6.3 percent.

"The core business has actually performed reasonably well in the economic environment," he said.

Safalow sees room for growth once the WWE network finally does premiere, which he said could be in the first quarter of 2013.

"I just think, in general, the enduring popularity of this business for decades is lost on the investing community," said Safalow, who described McMahon as impressive.

Michael Kupinski, managing director of media and entertainment at Noble Financial Capital Markets in Boca Raton, Fla., is less bullish on the stock, which he has rated as a "hold" in large part due to the uncertainty over the television network.

"I think the company has been preparing for the launch and spending a lot on that launch and we still don't have the visibility of what type of network, how it's going to be funded and what the operating exposure is going to be," Kupinski said.

Dave Meltzer, the San Jose-based editor of the Wrestling Observer, said the buzz surrounding the WWE network is that it could command a monthly subscriber fee of $9.95 to $18 and feature a wide array of programming that would ordinarily be shown on a pay-per-view basis.

The concern of incorporating pay-per-view content into the new network, Meltzer said, is that could cannibalize a lucrative source of revenue for the WWE.

"The subscription model has very high risks," Meltzer said. "I think part of the reason the stock price is down is there's tremendous skepticism over the network."

Representatives for the WWE said they are in talks with the nation's 10 leading telecommunications providers about a distribution plan and could have an announcement on the network's fate in the coming months.

"I'm sure the street would like to hear some more details about it," Barrios said. "I do believe the lack of visibility has affected the stock price somewhat."

Prior to April 2011, the WWE paid out an annual dividend of $1.44 on public shares of its stock and 96 cents on class-B shares owned by the McMahon family.

The company was forced to cut the dividend to its present 48 cents, 34 cents of which Kupinski said is covered by earnings.

"We are anticipating that they will be dipping into their cash to pay the dividend," Kupinski said.

In December 2011, WWE stock experienced a slight uptick and was in the neighborhood of $10.68 amid investor enthusiasm over the forthcoming addition of a TV network platform.

Still, at the time, CNBC's Herb Greenberg had some ominous words about the stock.

"This has got to be one of the most hated stocks out there," Greenberg said.

Meltzer played down McMahon's personal impact on the fortunes of the WWE.

"When it was good she had nothing to do with that. When it was bad she had nothing to do with it," Meltzer said.

He credited Vince McMahon with being the driving force behind the WWE.

"I never credit her for the business," Meltzer said. "That would be like George Lucas' wife running for office and saying, `I'm responsible for `Star Wars,' when maybe she did a lot of bookkeeping."

Barrios characterized it as a collective effort.

"It's never one person," Barrios said. "It's a lot of people that contribute to the success."

David Trainer, principal of New Constructs, a Brentwood, Tenn., investment research firm, and a former Forbes.com contributor, is still on the WWE stock bandwagon.

"Our model still shows that it's still inexpensive," Trainer said. "It's a profitable business. I think it's a low-risk stock right now."

The Wall Street veteran nevertheless wondered if the shift to PG content could play into the hands of the UFC and mixed martial arts, which he said are seen as more authentic.

"MMA to WWE could be what iPhone was to the BlackBerry. Who knows?" Trainer said.

Mike Johnson, a New York City-based writer for Pro Wrestling Insider, is convinced that McMahon's political aspirations factored into the WWE's decision to tone down its edgy programming.

"You put a gun to my head, I say absolutely," Johnson said. "It's absolutely a case of one side is watching out for the other."

Johnson doesn't see it as a detriment, however.

"The one thing that they've done since they've moved to PG is they've cultivated an entire generation of young fans," Johnson said. "I think they've tried to find elements to keep adults happy."

Meltzer theorized that the evolution of WWE programming was tied to the retention of sponsors such as toy maker Mattel, as well as McMahon's political ambitions.

"If their image was what it was in 1999 and she was running, they'd have a field day with her," Meltzer said.

WWE suits scoffed at the idea that the rebranding was tied to McMahon's plan to seek office, saying that its Friday Night SmackDown series went to a PG format in 1999, with Monday Night Raw following suit in 2008.

"Honestly, I think it's almost laughable that people think that," said Michelle Wilson, the company's chief marketing officer. "Politics had nothing to do with it."

Monday Night Raw celebrated the milestone of its 1,000th episode this past week with 6 million TV viewers, according to the WWE, which noted that the series has surpassed many other shows in longevity, including "Lassie," "Gunsmoke," and "Law & Order."

"It's pretty amazing when you look at the staying power," Wilson said.

As was the case in McMahon's previous campaign, WWE has been highly protective of its brand, threatening to sue the Journal Inquirer of Manchester for libel over the newspaper's characterization of its business and sending politicians scathing letters of rebuke over anything the company considered to be besmirching its name.

"They want to help and I'm sure a lot of that is Vince wanting to help his wife, but I think it ends up being more detrimental to her rather than helping her," Johnson said.

Perhaps somewhat lost in the ski slope-like freefall of the WWE stock is how it impacts the bank account of the McMahons.

"Obviously, their net worth is down substantially based on the stock price," Schiff said. "If they keep this up, I'll pass them pretty soon."

neil.vigdor@scni.com; 203-625-4436; http://twitter.com/gettinviggy