Vince McMahon reaffirms commitment to run WWE ‘for the foreseeable future’

I’ll leave it to sharper business minds to really break down this news for you. But as someone who graduated from one of Texas’ top business schools with really good grades, my take is the Form 8-K WWE filed with the Securities & Exchange Commission (SEC) this week indicates Vince McMahon is using some of his stock in WWE as security against a cash loan.

This “variable prepaid forward contract” gives the company liquidity now in exchange for shares later (March 2024), while allowing McMahon to retain the voting rights which come along with them. There are also tax benefits for the seller, and Vince has the option to buy out the contract and keep his shares between now and the transfer date.

With the stock market’s volatility during the coronavirus pandemic, and the prospect of greatly reduced live event revenue this year, it’s not hard to figure out why McMahon would want to give WWE more protection in the form of liquid assets.

What you don’t need any business experience to interpret is the closing line of the filing (emphasis mine):

Item 8.01. Other Events.

On March 24, 2020, Vincent K. McMahon (“Mr. McMahon”), Chairman and Chief Executive Officer of World Wrestling Entertainment, Inc. (the “Company”), entered into a variable prepaid forward contract with an unaffiliated bank (the “Bank”) covering approximately 3.5 million shares of the Company’s Class B common stock. The variable prepaid forward contract is scheduled to settle on specified dates in March 2024, at which time the actual number of shares of the Company’s Class A common stock to be delivered by Mr. McMahon will be determined based on the price of the Company’s Class A common stock on such dates, with the aggregate number not to exceed approximately 3.5 million shares, which is the number of shares of Class B common stock pledged by Mr. McMahon to secure his obligations under the contract. Subject to certain conditions, Mr. McMahon can also elect to settle the variable prepaid forward contract in cash and thereby retain full ownership of the pledged shares.

Mr. McMahon entered into the variable prepaid forward contract to provide current liquidity while allowing him to maintain voting and ordinary dividend rights in the stock, as well as the ability to participate in future stock price appreciation, during the term of the contract and thereafter if Mr. McMahon settles the variable prepaid forward contract in cash.

The shares covered by the variable prepaid forward contract represent approximately 4.5% of the Company’s total outstanding shares of Class A and Class B common stock. The variable prepaid forward contract does not apply to the approximately 25,198,344 other shares of Class B common stock beneficially owned by Mr. McMahon. Those shares represent approximately 70.5% of the Company’s total voting power. The variable prepaid forward contract contains a 60-day lock-up restricting Mr. McMahon’s ability to sell or transfer additional shares of the Company’s common stock during such period without the Bank’s prior approval. Mr. McMahon has informed us that he intends to continue in his capacity as the Company’s Chairman and Chief Executive Officer for the foreseeable future.

Not that we didn’t know Vince’s plan was to run WWE until he can’t, but there it is in legally binding writing.