A pre-trial briefing from the plaintiffs in the WWE shareholder case outlines their argument for nine figures in damages and belief that WWE was undervalued in its 2023 merger.
A 75-page briefing was released by the plaintiffs on Friday, just days before the case goes to trial in the Delaware Court of Chancery, where they argue the defendants participated in a breach of fiduciary duty.
The plaintiffs claim in their filing the following:
- That evidence at trial will show that WWE stockholders should have received at least 52.8% of the equity in TKO Group Holdings, rather than the 49% agreed to. Using the plaintiff’s estimate, it would account for damages ranging from $446 million to $949 million.
- That McMahon was deemed “irreplaceable” as WWE’s controlling shareholder, and the board always fell in line with McMahon’s wishes. Former board member Man Jit Singh is quoted in his deposition as saying he could not “think of a time that the board voted against Mr. McMahon.” Paul Levesque added under deposition, “If you get a ‘no’ from everybody else and you get Vince to say yes, that’s the answer.”
- The relationship between Ari Emanuel and Vince McMahon goes back decades. Included in the briefing is an image sent by McMahon to Emanuel on his birthday, where their heads are edited onto a poster of the film “Step Brothers” starring Will Ferrell and John C. Reilly, along with texts sharing their admiration and love for each other.
- Plaintiffs contend that “McMahon never intended for his July 22, 2022 retirement to be permanent. Within an hour of the announcement, McMahon spoke with Emanuel, who he knew “had been interested in acquiring WWE for a long time.” That same day is when Mark Shapiro sent a message to executives at Endeavor predicting the eventual outcome: “Nick and Stephanie are going to take over the WWE for the next nine months. At the end of [] nine months Vince [will] be back with a new board or he will take the company private or he will sell it/coming to us. The race is on. The courtship is on.”
- On August 10, 2022, Emanuel met with McMahon, Nick Khan, and Stephanie McMahon for lunch and “pitched” a merger between WWE and Endeavor.
- During the federal investigations into McMahon’s conduct, Jeff Sine of the Raine Group, testified that McMahon was “very distracted by everything else going on in his life[,]” had “family issues,” “[f]ederal issues[,]” “company issues[,]” and “there was a lot of stress.”
- An important element included in the plaintiffs’ brief is from Nick Khan’s testimony regarding his ability to negotiate WWE’s media rights (set to expire in Sept. 2024) in the wake of the scandal involving McMahon. Khan testified that he believed the scandal would create “significant headwinds in hitting what, prior to that, I believe were attainable goals” and that his negotiations with third-parties during that period were “some of the worst conversations that I’ve had in my now 25-year career in terms of the negativity that we were feeling or I was hearing from our third party partners.”
- McMahon’s legal representation was already preparing a draft letter to the WWE’s board to allow McMahon to return in November 2022 but was “paused because another survivor came forward with allegations of misconduct.” McMahon formally contacted the board for a return in late December, which the board argued “would not be prudent from a shareholder value perspective” due to the ongoing government investigations. McMahon threatened to reject any media deal or transaction unless he was reinstated and led to his return and ouster of three independent board members to be replaced by George Barrios & Michelle Wilson, along with McMahon. Man Jit Singh and Ignace Lahoud resigned the day after, and Stephanie McMahon resigned after McMahon was elected as Executive Chairman in January 2023.
- During the bidding process, Liberty Media submitted an offer valued at $95 to $100 per share in cash. This brought McMahon to tell Jeff Sine, “Ari should know about Liberty. Could hear it from me or you, ASAP.”
- On March 22, 2023, a handshake deal was made between WWE and Endeavor for a 51-49 split in favor of Endeavor, with McMahon holding a position as Executive Chair. “On March 23, Endeavor submitted a revised term sheet reflecting the agreed upon equity split and ongoing role for McMahon. Multiple witnesses confirmed that McMahon’s continued involvement with the combined company was a “Vince goal,” not an “Endeavor goal”.
- The plaintiffs claim that McMahon was the beneficiary of “Non-Ratable Benefits”, which means “a unique benefit by extracting something uniquely valuable to the controller, even if the controller nominally receives the same consideration as all other shareholders.” These non-ratable benefits included a lifetime position at TKO, an ability to monetize $670 million of his stake within months of the completion of the merger (which other shareholders could not do), and indemnification and legal assistance in his ongoing investigations.
- It’s contended that McMahon, Emanuel, and Raine timed the merger to benefit Endeavor by completing the transaction before WWE’s next round of media rights were negotiated, which would have provided a higher valuation for WWE and required the wrestling company to have a majority stake in TKO.
- “Loyalists” to McMahon were rewarded for the transaction, specifically, a $15 million bonus to Nick Khan, $5 million to Paul Levesque, and $5 million to Frank Riddick III.
- Regarding Endeavor’s need to have a majority stake in TKO, it’s asserted by the plaintiffs that, in order for Endeavor to access certain capital to finance its debt and to satisfy tax and indenture covenants, it could not negotiate a deal where it had a minority stake in the UFC in the post-deal company. Accepting a minority stake would “accelerate a large payment” and would harm the value of the UFC, and is described in the briefing as a “red line of their offer they would not cross.”
The trial begins this Monday in the Delaware Court of Chancery with Vice Chancellor J. Travis Laster presiding. The court will be in session for four days, and Laster will make a ruling at an unspecified time.
