Exclusive Details On Harvard's WWE Case Study: Who WWE Sees As Their Main Competitor, Royalties

As previously noted, Harvard Business School's Business Of Entertainment, Media, And Sports class will include a case study on World Wrestling Entertainment (WWE), beginning this fall. Course instructor, Professor Anita Elberse, has been gracious enough to provide me with an advance copy of the WWE case. Here are some highlights that may be of interest to professional wrestling fans:

WWE did not pay for the development of the case; however, a WWE designate approved of the case before publication.

The case takes place in January 2018 and focuses on the questions of whether WWE should try to sign retired MMA fighter Ronda Rousey, and, if so, how such a deal should be structured.

Professor Elberse and her Research Associate Melissa Rodman open the case with a brief history of WWE, revisiting the acquisition of Vincent J. McMahon's Capitol Wrestling Corporation in 1982 by Linda and Vincent K. McMahon. The younger McMahon described the old territories days of professional wrestling as "fiefdoms".

"At the time, the U.S. was broken up into various small regional businesses or fiefdoms. There was an agreement by all these promoters that no one would invade their territory," McMahon said. "But when I bought the business, I knew exactly what I wanted to do. I was going to compete with everyone by having a better product."

Professional wrestling in the 1980s was epitomized as The WrestleMania Era with the growth of WWE, WWF at the time, through the emergence of WrestleMania as the company's flagship annual event.

The 1990s was typified by The Monday Night Wars, with Vince & Co. staving off elimination at the hands of Ted Turner's World Championship Wrestling (WCW). Elberse and Rodman suggested that WWE was able to defeat WCW by moving towards edgier content and overtaking the competition in television ratings.

The 2000s saw WWE retreat from risqué content, as Vince McMahon always wanted a product that could appeal to the whole family.

"[Vince McMahon] felt the marketplace would be receptive to safer content again. We wanted to grow the way we wanted to, have a product that appealed to a wide audience, and re-attract the blue-chip sponsors we had lost [in The Attitude Era]." WWE's Chief Brand Officer Stephanie McMahon continued, "he wanted to clean up the perception; he didn't like all of the blood and guts and gore."

Elberse and Rodman wrote, "[a]s of January 2018, WWE had evolved from a company centred on promoting live wrestling events to a fully integrated media and entertainment company. It employed 850 staff members and earned more than $800 million in revenues annually, with more than $200 million coming from international markets."

Interestingly, the case names New Japan Pro-Wrestling (NJPW) as WWE's main competition as of January 2018, with Ring Of Honor (ROH) and the independent circuit receiving mentions.

"A smaller competitor was Ring Of Honor (ROH), which was founded in 2001, based in Baltimore, Maryland, and owned by television company Sinclair Broadcasting." Elberse and Rodman added, "[m]any smaller promotion companies around the U.S., most of which focused solely on live events, together formed what is known as the independent circuit."

Stephanie McMahon pointed out that WWE does not consider other professional wrestling promotions as potential competition any more than any other form of entertainment.

"[W]e are all competing for what every media property competes for: a share of people's time."

Along these lines, Vince McMahon claimed that storytelling in WWE is just the same as it is in other avenues of entertainment.

"We have protagonists – good guys – and antagonists – bad guys – among our characters. Almost everyone is shades of gray, though, because that's what life is, and that's what makes audiences interested. From there, we create some sort of conflict." McMahon said, "And then, after we have established conflict, we create resolution. That is always the big finish, whether it is a movie, a novel – or a wrestling match."

With respect to storytelling, Stephanie McMahon purported that WWE fans sway outcomes.

"[WWE fans] cheer, they boo, they make signs? and they actually impact what happens in the ring. If our audience is not reacting the way we want them to, we have to change course."

Next, the case outlines WWE's main areas of business, namely live events, media, consumer products, and WWE Studios. With respect to live events, WWE made over $150 million from live events in 2017. Beyond the massive gates of WrestleMania shows, WWE runs hundreds of live events annually.

Elberse and Rodman wrote, "[t]he largest events at which the company's top wrestlers made appearances could draw tens of thousands of fans, whereas smaller events with developing wrestlers might have fewer than a thousand spectators."

WWE's media division includes television, WWE Network, home entertainment, and social and digital media. This wing of WWE brought in over $500 million in revenues in 2017. Vince McMahon described his rationale for developing the WWE Network.

"The pay-per-view business is going to be archaic in a certain amount of time, so why wouldn't we reach our audience directly without having to pay 50% to a distributor? I thought that if we bring the price down, almost anyone could afford it, and so we can tap into a much larger market," McMahon stated.

Although the home entertainment business is declining, WWE generated $35 million from social and digital media in 2017, mostly from advertising revenues.

Consumer products is a major area of business for WWE, accounting for $110 million in 2017. Almost half of that amount was generated from licensing fees for products such as video games and toys.

In regards to developing talent, the case considers the WWE Performance Center and NXT. Of note, Stephanie McMahon seems to think that RAW and SmackDown Live viewers are fans of NXT Superstars before such talents are called up to the main roster.

"We track digital and social media, we track merchandise sales? We know who's making it and who isn't," Stephanie said. "By the time our characters get up to the main roster, our fans are invested in them."

Also of note, Triple H, WWE Executive Vice President Of Talent, Live Events, And Creative, claimed that he is charged with the responsibility of deciding which NXT talents graduate to RAW or SmackDown Live.

"It is ultimately up to me," Triple H noted. "But, look, fan reaction is really what drives our business. Our biggest stars are the ones that get the biggest reaction, positively or negatively."

According to Elberse and Rodman, there are approximately 100 professional wrestlers in WWE's developmental system and only about 40 are featured on NXT. NXT performers typically earn salaries "in the low six figures", with the possibility of making up to $250,000 annually when merchandise and sponsorship sales are factored in.

The case turns to WWE performer contracts and explains the downside guarantee contract provision. Essentially, WWE Superstars are independent contractors who receive a certain minimum salary, ranging from the high six figures to low seven figures, regardless of the actually work that is performed for the company. Elberse and Rodman wrote, "[a] wrestler could add to the minimum payment by participating in WWE events, by selling merchandise, by taking part in brand partnerships, and by engaging in media or other activities." Apparently professional wrestling great John Cena had the highest downside guarantee of all WWE Superstars as of 2017.

Despite the complaint that WWE Superstars make very little money from merchandise sales, Vince McMahon alleged that WWE's compensation model is meant to foster a partnership between performer and company.

"What we want is for the talent to work with us in every conceivable way," Vince said. "So why not let them have a piece of it? They are working hard, so if there is success, you let them in on it, whether it is with an action figure or a t-shirt."

WWE talent are required to assign their existing intellectual property over to WWE for the duration of the contract and "all property created for the wrestler during his or her time with WWE belonged to WWE in perpetuity."

In regards to outside opportunities, WWE Superstars must get WWE's permission before taking part in outside appearances or film or television roles. Elberse and Rodman explained, "WWE typically charged a management fee that was deducted from the payment the talent received for the activity."

According to the case, Triple H had his eye on Rousey since her days in Strikeforce and got the opportunity to meet Rousey when she attended SummerSlam (2014) as a fan. While getting Rousey involved in WWE may have seemed fanciful at the time, by the end of 2016, it became a real possibility.

"When that second [UFC] loss happened, everything shifted," Triple H said. "That's when the question of what was she going to do next moved to the forefront."

Notably, WWE Chairman Vince McMahon was not immediately sold on the idea of bringing in Rousey and questioned 'The Rowdy One”s ability to transition from The Octagon to the squared circle.

"I don't know if I would have gone after her with the same zeal as my daughter [Stephanie McMahon] and son-in-law [Triple H] are pursuing her," Vince said.

On the subject of structuring a talent contract for Rousey, Triple H anticipated that the so-called downside guarantee would be the biggest item to be negotiated.

"I wouldn't be surprised if we end up having to promise a downside guarantee that is comparable to the one John Cena has – and he is our highest-paid wrestler," Triple H professed. "The question is whether we should be prepared to go that high. And if they push for a guarantee that is significantly better than anyone else has ever had, male or female, I wonder whether we should even entertain such an idea."

Professor Elberse's students in this second-year course will be expected to weigh WWE's opportunity of signing Rousey and discuss the particulars of a hypothetical performance contract for the judo specialist. Click here to apply to Harvard Business School.