Smackdowns Are Taking Their Toll at the WWF

The death of the XFL is just one of its many bruises

Vince McMahon, the square-jawed chairman of World Wrestling Federation Entertainment Inc. (WWF ), can usually dodge the chairs thrown at him when he appears on one of his volatile TV shows. But offscreen, 2001 has been one smackdown after another for the impresario of totally tasteless television.

This summer, McMahon was slammed by a British court, which ruled that the acronym used on the World Wrestling Federation Web site belongs to the World Wildlife Fund. Meantime, McMahon is battling the satellite broadcaster DirecTV, which has yanked the WWF's pay-per-view events in a contract dispute. Then, of course, there was the whipping the WWF took last winter when its much-hyped XFL football league--a joint venture with NBC--folded after one disastrous season. That failure alone meant a $37 million charge to earnings in the quarter ended Apr. 30.

Little wonder, then, that the WWF, once a Wall Street darling, has fallen faster than a pudgeball dropped by The Rock. After rising as high as 21 a share in January, just ahead of the XFL's launch, the company's stock now trades at 12. And in late July, the WWF said it may have to scale back its projections for fiscal year 2002 revenues because of an "extremely soft" ad market. That prompted analysts to downgrade the stock. In an Aug. 23 report on first-quarter results, issued after BusinessWeek went to press, execs were expected to stick with revenue growth projections of 8% to 10% for the year, with the caveat that a sustained ad drought could change that.

Wall Street is far less optimistic. "After the demise of the XFL, the company is faced with how to grow its business ...within a market that is saturated," says Legg Mason Inc. analyst Breck Wheeler, who lowered her buy rating in July. She sees a 6% dip in revenues this year, to $431 million. Ac- cording to earnings track- er First Call Corp., analysts are projecting a steep drop in first-quarter earnings, to $7.29 million, vs. $15.24 million reported for the same period last year.

The pounding hasn't done much to dim the ambitions of McMahon and his wife, Linda, the CEO. "We're still the strong entertainment brand we've been for 50 years," she says. Linda predicts that growth will come from a new franchise, "The Alliance," which will combine characters of World Championship Wrestling--acquired from AOL Time Warner earlier this year--and from another acquisition, Extreme Championship Wrestling. The Alliance will have its own shows, pay-per-view events, and merchandising. Another strategy is to expand overseas, starting with two pay-per-view events in Britain. In addition, the company, which last year paid $24.5 million to open a restaurant, store, and TV studio in New York's Times Square, also has branched out into music and even its own line of cookbooks and children's stories. And on Aug. 25, it announced the launch of a live, two-hour, magazine-style show, WWF Excess, on the cable channel TNN.

FAN FATIGUE? Still, there are indications that even the WWF's maniacal fan base may have reached its over-the-top limit. Following years of steady growth, attendance at WWF bouts leveled off at 2.5 million in the fiscal year ended Apr. 30. Ratings fell by 5% for its most popular show, its Thursday night WWF Smackdown on UPN. "WWF executives were distracted by the XFL problems and let their story lines get a little tired," says Peter Swan, an analyst at Pacific Growth Equities. He downgraded WWF stock from buy to long-term buy. Linda denies executives were distracted by the XFL, but says: "We plan to put some meat back into creative." Sales of WWF toys and videos fell as well in the past year, and the company scrapped a plan to build a casino in Las Vegas.

The McMahons, who own all of the company's super-voting B stock, are scrappers, though. The WWF intends to fight the British Web site ruling, and it refuses to buckle under to DirecTV.

This kingdom of sex, soap opera, and violence is not immune to the cutbacks washing across Corporate America. Bonuses for Vince and Linda in the last fiscal year were slashed by 30%, according to a recent proxy statement. Still, the $3.3 million that the WWF chairman and his CEO took home last year buys a lot of Band-Aids. And their take doesn't include the $850,000 performance fees that Vince collected for dodging those flying chairs.

By Ronald Grover in Los Angeles and Tom Lowry in New York

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