Financial Analysis & Valuation Final Group Project Fall 2017

World Wrestling Entertainment, Inc.

Andrew Sanusi, Edwin Kosasih, Emily Hartono, Megan Chu, Vanessa

Gunawan, Yosua Setiawan
Part A - Company and Industry Analysis, Forecast
Company and Industry background
Business model
WWE is an integrated media organization that creates and delivers original content all year
round to a global audience. It is the only publicly traded professional wrestling organization in
the world. Their revenues stem from 4 primary divisions: Media, Live Events, Consumer
Products and WWE Studios.
The Media business, representing 63% of revenues, includes subscription-based WWE
network, pay-per-view programming (eg.WrestleMania, RAW, SmackDown), television and
digital platforms. The WWE network is a 24/7 direct-to-consumer network that includes 16 live
pay-per views for $9.99, scheduled programming and a video-on-demand library that is
available in 180 countries and reaching over 650 million homes in 20 languages. They use the
internet to not only create a community experience for their fans but also use it as a change to
market their products and sell online advertising.
The Live Events business represents 20% of revenues, producing over 280 events in 2016. In
Q3 2017, it slightly declined, representing only 17% of revenues. They conduct live events
within the United States and abroad through their multiple sports entertainment brands.
The Consumer Product business consists of Licensing, Venue Merchandise and WWEShop
Segments online.​ ​As of Q3 2017, it constitutes 12.9% of the total revenues. They build
partnerships with companies globally to license their brand in diverse categories such as toys,
video games, apparel, housewares, collectibles, sporting goods and books.
Lastly, the WWE studios segment amounted to 2.3% of the total revenue in Q3 2017. According
to their website, WWE studios segment was “​established in 2002 and re-branded in 2008. WWE
Studios creates a diversified mix of filmed entertainment by means of strategic production, financing,
distribution and acquisition partnerships.”
Globally, WWE attains 74% of its revenues from North America, 16.8% from Europe, 7.5% from Asia
Pacific and 1.6% from Latin America.

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Industry landscape
WWE operates within the entertainment and television industry and performs both distribution
and content creation, it experiences vast number of competitors. Within the distribution section
of the business, WWE faces competition from Over-the-Top (OTT) distributors such as Netflix,
Hulu, UFC Fight Pass, HBO NOW, Sling TV and PlayStation Vue.
Meanwhile, on the content creation side of the business, they face competitors from the major
studios as well as independent production companies, Impact Wrestling (TNA Wrestling) and
UFC.
As noted previously, WWE divides its business into 4 segments: Media, Live Events, Consumer
Products and WWE Studios. The media industry has a total revenue of $703B, WWE holds
0.07% market share. The Consumer products industry includes Toys, Mens/Boys apparel,
Women/Girls apparel and sporting goods stores, they generate a total revenue of $56.8B of
which 0.19% belongs to WWE. The film entertainment industry has $43.9B in revenues and
WWE’s studio business holds 0.02% of it. The Live events industry including concert and event
promotion has a $28.4B revenue with WWE holding 0.51% market share.

Competitive positioning and current market position

WWE is the only publicly traded professional wrestling organization in the world catering to a
niche interest. Its OTT streaming service, WWE Network, is the fifth largest OTT in the US. “The
company is multiple times bigger than its direct competitors and WWE has far greater resources
and commitment to expanding their business than any other wrestling promotion. The
subscriber growth to the Network and complete lack of direct competitive threats may partially
offset the possible coming headwinds of lower TV rights fees.”
According to Jeremy McKinzie from Seeking Alpha, WWE is multiple times bigger than its direct
competitors. Subsequently, they have much greater resources and commitment to expanding
their business than their competitors.
WWE has recently announced that their WWE network will be available in China on PPTV for
the first time. ​PPTV customers can download the PPTV App and watch WWE Network content via
smart TVs, set-top boxes, mobile devices and tablets, as well as on www.wwe.cn, www.PPTV.com
and www.Sports.PPTV.com.

Historical performance
In the 70’s, WWE was known as World Wrestling Federation (WWF) and owned by Vince
McMahon Sr. He was an old school man who insisted that his wrestlers should stay out of the
limelight to preserve the legitimacy of wrestling. However, after his son took over in 1983, WWE
completely changed its business strategy, leveraging the rise of cable TV and national
popularity of wrestling. Vince McMahon Jr. started signing famous wrestlers such as Hulk

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Hogan and expanded his regional territory to a national one by signing other wrestlers from
other regions.
Vince expanded the business rapidly in the 80’s. He involved Cyndi Lauper (a famous singer)
on his programming which led to the match being featured on MTV. He was able to sign popular
wrestlers to appear in the main event of WrestleMania. All this growth was costing him a lot of
money, especially to get TV time, however, the increase in exposure also brought licensing
deals that were previously non-existent in the wrestling business. Moreover, the event
WrestleMania 3 in 1987 set a record breaking North American indoor attendance record of over
90,000 people. It was also the first successful event for the pay per view industry.
WWE faced competition from Jim Crockett’s NWA (later renamed World Championship
Wrestling) as they fought to obtain audiences during the same time slot on TV. However, due to
Vince’s clever maneuvers and counter series, they were able to gain leadership of the
audiences.
Due to some leadership scandal in the 90s with Vince however, their product quality and
offering suffered. Only 1 TV show was successful during this time period, RAW. During this
time, WWE were getting destroyed in ratings as WCW obtained new leadership in the market by
stealing WWE’s wrestlers and doing other clever tactics.
After this bad era, WWE manages to shift to a more edgy and adult content. They introduced
wrestling Diva, SmackDown! And in the meantime, their competitor WWC was experiencing
major problems allowing WWE to control the wrestling world in the early 2000.

Outlook
From the investor presentation of Q3 2017, WWE states that 2018 key initiatives include
“delivering a wide range of content across platforms, continuing to develop data and technology
infrastructure and investing in markets with the greatest long- term potential.” They are planning
to announce future distribution plans in UK, US and India by end of 2018.
WWE still has ample room to grow within the OTT industry, especially in markets outside the US
comparing to larger players like Netflix and Hulu. They can drive growth by implementing
localization strategies, leveraging technology and search, improving product and market
segmentation and increasing marketing efforts. There is an expected growth in the OTT market
with the increase of adoption of connected devices such as Apple TV and global connected
TVs.
In terms of TV rights renewals, Morgan Stanley believes that since WWE’s RAW and
SmackDown represents the highest-rated shows on USA and one of the top rated shows on
cable TV, NBC would want to renew their contract to a 5 year term.

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Selected​ ​Public Comps
Time Warner
Time Warner engages in media and entertainment business in the United States and
International markets,very comparable to WWE. This means that they are both affected by
exchange rate risks.

Moreover, they operate through 3 segments: Turner, Home Box Office and Warner Bros which
creates, packages and delivers content, similar to WWE. Turner, amounting to 38.76% of the
total revenues, creates and programs branded news, entertainment m sports and kids
multi-platform content similar to WWE’s Studios segment even though their content is more
diversified comparing to WWE. Their Home Box Office segment, constituting 20.09% of
revenues provides premium pay, basic tier television and video content services, sell original
programming through physical and digital formats and licence entertainment and content to
international television networks and video content service. This segment is similar to WWE’s
Media business. Time Warner’s Warner Bros segment, constituting 44.46% of revenues,
produces, distributes, and licenses television programming and feature films, distributes digital
and physical home entertainment products, produces and distributes video games and licenses
consumer products and brands. This segment is similar to WWE’s Media and Consumer
Products business.

Although Time Warner operates a similar business model as WWE, Time Warner is much larger
and much more diversified than WWE. For example, in 2016, its revenue reaches $29.3B while
WWE’s revenue was only $729M. On the other hand, they do have a similar Debt to Equity ratio
in 2016, with WWE 84.5% comparing to Time Warner’s 100.67%. overall , since Time Warner is
engaged in similar businesses, operates in the US and Internationally, have similar debt to
equity ratio, it serves as a good comp for WWE.

Madison Square Garden

Madison Square Garden operates in live sports and entertainment. They broadcast several
sports such as college basketball, hockey, professional bull ring, MMA, ESports, tennis, tennis
and wrestling. It corresponds well with WWE’s live events business therefore it possesses
similar operational risks and expense structure such as athlete payment and others. They are of
similar size in terms of revenue with WWE with $1B in revenues in 2016 comparing to WWE’s
$729M. However, their assets and revenues are concentrated in New York with no international
operations therefore they are not objected to exchange rate and market risk like WWE does.
Overall, they make for a good comp because they’re similar in size, operate similar type of
business representing the live events.

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MGM

MGM engages in global production and distribution of film and television content, similar to
WWE. They operate MGM branded channel in the U.S and action-oriented video on demand
service with 13 million subscribers. They own and operate multicast networks that reaches 97
million households in the US. It also licences film clips, still images and other elements from its
film and television content for advertisements, feature films and other forms of media and on
stage production. Most of their revenue comes from theatrical, home entertainment and
television. Although, their digital business is increasing in importance. This revenue composition
is similar to WWE’s, since WWE’s media business make up most of their revenue. Even though
they operate similar businesses as WWE, they have a different debt to equity ratio (129.7%)
and revenue size ($9.06B). However, overall, MGM makes a good comp because they are a
global business exposed to similar risks in the production and distribution in the entertainment
industry.

Lionsgate

Lionsgate is engaged in motion picture production and distribution on cable, broadcast and
digital platforms, television programming and syndication, home entertainment, branded
channel platforms, international distribution and sales and interactive venture and games, and
location-based entertainment. Even though Lionsgate has a more diverse content library that
caters to a larger customer segment than WWE, they both have operations in producing content
for television and digital platforms.

Lionsgate is similarly international, with its content being distributed through global cable
broadcast and digital platforms with its labels such as Pantelion Films, Codeblack Films,
Roadside Attractions, Lionsgate UK and digital platforms such as Showtime, AMC, Netflix, E!
Network, Hulu and OWN.

WWE's D/E is different from that from Entertainment one, but they are both at the lower end of
the D/E spectrum of our company comparables and have actually converging in the past two
years.

Entertainment One

Entertainment One is present in the US, Canada, the UK, Spain, Australia, New Zealand and
the Benelux has three business segments - television, family and film. Group revenue is mainly
contributed to by film (52%), followed by television (40%) then family (32%). EBITDA
contribution is led by television (37%), followed by family (32%) then fillm (31%).

We chose to compare Entertainment One to WWE due to its similar business streams to WWE
and its investment in the production of television, OTT and SVOD content. In addition,

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Entertainment One has WWE’s revenue size has been similar in the past 4 years, them being
760MM and 609MM respectively.

A deeper dive of Entertainment One shows that the Television Division comprises of eOne
Television, The Mark Gordon Company and the Group's Music operation. It focuses on
producing and acquiring television content for sale to broadcasters and digital platforms globally
(including Netflix and Amazon Instant Video) in over 150 territories. The Family Division
develops, produces and distributes a portfolio of children’s properties on a worldwide basis. It
generates revenue through licensing and merchandising programmes across multiple retail
categories. Thirdly, the Group's Film Division operations consist of a multi-territory distribution
and global digital rights, acquiring content from production partners for distribution across all
consumer platforms. The Division has direct distribution capabilities in Canada, the UK, the US,
Australia/New Zealand, Spain and the Benelux. Revenues are comprised of theatrical (mainly
box office), home entertainment (mainly DVDs as well as digital formats), broadcast and digital
(mainly SVODs such as Amazon Instant Video, Netflix, HBO), production and international
sales.

CBS Corporation

CBS creates and acquires premium content that targets a wide audience. They distribute this
content on multiple media platforms to various geographic locations, generating both advertising
and non-advertising revenue. Its digital platforms included the company's own digital streaming
services, as well as third-party live television streaming offerings. Although CBS’s revenue size
is larger than that of WWE, the similarities between their product and service offerings is why we
chose CBS as a comparable company. However, CBS has seen a different growth trend to
WWE. CBS has seen a steadily increasing profit margins from 2012-2014 but dropping from
2015-2016. Meanwhile, WWE has seen fluctuating profit margins, decreasing from 2012-2014
and increasing from 2015-2016.

In a deeper dive into CBS’s business, we realized that it has 4 main revenue segments. Firstly,
the ​Entertainment segment (67% revenue of year ended 2016) is composed of the ​CBS
Television Network; CBS Television Studios; CBS Studios International and CBS Television
Distribution; CBS Interactive; CBS Films; and the Company’s digital streaming services, ​CBS All
Access​ and ​CBSN​. Secondly, the Cable Networks segment (16% revenue of year ended 2016)
is composed of Showtime Networks, which operates the Company’s premium subscription
program services,​ Showtime​, ​The Movie Channel​, and ​Flix​, including a digital streaming
subscription offering; ​CBS Sports Network​, the Company’s cable network focused on college
athletics and other sports; and Smithsonian Networks, a venture between Showtime Networks
and Smithsonian Institution, which operates ​Smithsonian Channel​, a basic cable program
service, and a digital streaming subscription service. Thirdly, the Publishing (9% revenue of year
ended 2016) is composed of Simon & Schuster, which publishes and distributes consumer
books under imprints such as ​Simon & Schuster, Pocket Books, Scribner​, ​Gallery Books,​
Touchstone​ and ​Atria Books. The local media ​segment is composed of CBS Television
Stations, the Company’s 30 owned broadcast television stations; and CBS Local Digital Media,
which operates local Websites including content from the Company’s television stations and
news and sports radio stations.
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Benchmarking Analysis of Comps
Historical revenue growth
Within the last 5 years, WWE has experienced increasing revenue growth on an average rate of
8.78% (CAGR: 8.54%). The growth rate has been steadily increasing since 2012 and looking at
the 5 year industry average of 8.76%, WWE is in line with its competitors. This increasing
revenue growth trend is similar to other competitors in the industry such as Time Warner who
experienced a 0.47% average growth (CAGR: 2.97%) and Madison Square Garden with
13.03% (CAGR:12.77%). Although the other competitors also experienced an overall increase
in revenues within the last 5 years, their growth rates were much more volatile. For example,
Lions Gate Entertainment had a 70.58% growth from 2012 to 2013 but then dropped to -2.88%
of revenue in 2014. They continued to have negative growth until 2017 when they experience
revenue growth of 36.38%. Similarly, CBS Corporation fluctuated between a positive and
negative growth rate over the 5 years, with highest growth rate from 2012 to 2013 at 9.24% and
lowest growth rate of -10.61% from 2013 to 2014.

Profit margins
The overall profit margin performance of the industry varies by company and has little
correlation with each other. Top performers that are above industry average include Lionsgate,
Time Warner, Entertainment One and CBS. Meanwhile, WWE, Madison Square Garden and
MGM are below industry average.
WWE has seen fluctuating profit margins, decreasing from 2012-2014 and increasing from
2015-2016. Its average profit margin from 2012-2016 was lower than industry average profit
margin (1.96% vs 4.03%).
Also an underperforming companies, Madison square garden has seen an increasing profit
margin. However, WWE’s profit margin is larger than that of Madison Square garden. MGM has
decreasing profit margin since 2012 with a recent revival in 2016. Yet, MGM’s profit margin in
2016 is already more than WWE’s total profit margin from 2012 to 2016.
The top performing companies see better profit margins. Time Warner has seen steady, high
profit margin at a five year average of 4.18%. Entertainment One has seen steady increasing
profit margins, growing from 2013-2015 but dropping in 2016. CBS has similarly seen steadily
increasing profit margins from 2012-2014 but dropping from 2015-2016. However, an outlier is
Lionsgate, whose profit margin has been decreasing at a five year average of 37%.

Expense margins (OPEX/Revenue)

WWE’s average expense margin over the past 5 years is 96%, which is above the industry
average of 89%. WWE has relatively stable expense margin other than the 10% jump to 107%
from 2013 to 2014.This high expense margin is worrying as amongst its competitors, WWE has

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the second highest average expense margin, trailing behind The Madison Square Garden
Company with 106%. While the lowest expense margin is 75%, belonging to Time Warner.
Overall when benchmarking against the competitors WWE has a relatively high Operating
Expense, however we are not too worried about this as WWE is currently undergoing operating
changes and with future economies of scale we believe that this number will become in line with
the industry.

Invested capital (NWC and CAPEX)

We see that WWE’s 5 year average Net Working Capital (NWC) of -18.33 is way below its
competitor’s average of 499.06. A negative NWC is understandable for WWE since they
operate under the deficit financing model which requires substantial upfront investment and
includes some short term debts thus increasing their current liability. Since they also sell tickets,
receive subscription fees in advance, they have unearned revenue that will further increase their
liabilities. As for its competitors, Madison Square Garden Company has a 5 year average NWC
of -424.52 and MGM resorts with an average of -1292.98. While other competitors such as
Lions Gate Entertainment (292.17), Entertainment One (150.28), Time Warner Inc (1597.2) and
CBS Corporation (1672.2) have positive NWCs, probably due to higher current assets than
WWE.
WWE’s Capital Expenditure (CAPEX) has decreased from its 2012-2013 levels (expansion
level), but in the past 2 years it has increased again to around 29.90mn for 2016. After
benchmarking WWE against its competitors we see that WWE’s 5 year CAPEX average of
30.33mn is much lower than the industry average of 328.19mn. Although this may seem
worrying, this can be attributed to its competitors such as MGM, Madison Square Garden, CBS
Corporation and Time Warner being of a much larger size and thus making their CAPEX also
much higher. Comparing WWE to its closer sized peer Lionsgate, we see this positive trend that
in the past 3 years CAPEX levels are increasing. Thus, looking at WWE’s Capex in recent years
against its competitors, it portrays positive trend as the companies are willing to spend more to
invest in the business. Ultimately, as WWE is further looking to increase its online subscription
WWE network and also expand its global presence we expect its CAPEX in the coming years to
continue to increase.
Depreciation expense and amortization expense
WWE’s D&A expense has remained steady since 2012 with an average change of 5.6%.
Excluding the outlier Lionsgate (115%) from the benchmarking calculation of change in D&A
expense, the industry change in D&A expense is -0.3%. WWE’s D&A expense change is not
significantly higher than that of the industry.
Compared across its peers, WWE’s average D&A expense size across 2012-2016 is at the
lower spectrum at 23MM. In a benchmarking assessment of D&A expense size (excluding the
outlier MGM with 852MM D&A), the average D&A expense size is 144MM.

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Forecast of company’s future performance and FCF for DCF
Company’s business model and growth potential
Of the four main divisions within WWE, the Media division is the main source of revenue that
makes up 64 percent of sales. Within the Media division, Television and WWE Network make up
the majority of revenues. Considering these are the key drivers of WWE’s revenues, we decided
to focus our forecast primarily on the growth potential of these two sectors.
The WWE Network offers content through pay-per-view events and subscription-based
streaming network. Since February 2014, however, pay-per-view content has been included as
part of the network subscription, and has resulted in significant declines in pay-per-view
revenues. Therefore, the number of subscription to WWE Network has been a larger driver of
revenues than pay-per-view.
In the past few years, the number of WWE Network subscribers have been far higher in
international markets than domestic. Hence, we decided to project the growth rates separately
for each domestic and international markets. For the domestic growth rate, Q3 performance was
3% from the previous year, and in 2015 growth rate increased from 8% in Q3 to 10% in Q4.
Therefore, we applied a similar trend for our forecast, and used total annual growth of 4% for
the full year of 2017 and forward.
Based on investor presentation in Q3, management expects the full year 2017 to have overall
8% increase in the number of subscribers globally. Using this number, we derived a 19%
international subscriber growth to support an overall 8% increase.
In the Television section with the Media Division, TV programs include five hours of weekly
domestic programming, in which we see a relationship of TV revenues with WWE Network
domestic subscribers, which could reflect the number of domestic viewers. Therefore, we used
this ratio relationship to project TV revenues.
To project other segment revenues, we observed that the ratio of segment revenues has
remained fairly constant for the past 3 years. Therefore, to project the revenues of all other
divisions besides media, we took those ratios and multiplied them to the media revenue we
already projected.
Realizing that the EBITDA margins have remained relatively steady in the past three years, we
took the average of historical margins of each segment (after taking out several outliers) to
project each segment’s EBITDA.

Impact of competition
Although WWE faces few direct competition, it faces various indirect competition that are
“subject to fluctuations in popularity, which are not easy to predict” from “professional and
college sports, other live, filmed, televised and streamlined entertainment, and other leisure
activities.”1 Nonetheless, we believe that WWE’s current positioning has a competitive

1
Source: WWE 2016 Annual Report
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advantage from its unique content offering that attracts a loyal fan base, and will not be
significantly affected by indirect competitors in the near future of our forecast period. Still, we
decided to be more conservative with our predictions to take into account any possibilities of
disruption of other technologies.

Disruption of other technologies

As mentioned previously, we see a major risk of cannibalization of pay-per-view revenues in the
WWE Network by the subscription method that offers content at a lower cost. Therefore we
decided to reflect this in a continuous decline in pay-per-view revenues over the forecast period,
offset by increases in subscription revenues.
Similarly, within the Media division, home entertainment content has seen declining sales due to
the gradual shift by consumers from DVD and Blu-Ray to digital formats downloaded or
streamed over the internet. Based on this trend, we decided to maintain a conservative
prediction of sales with no growth over the forecast period.

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Part B - Standalone Valuation
Discounted Cash Flow
WACC
For our Discounted Cash Flow valuation, we use a Weighted Average Cost of Capital of 7.41%.
To calculate the Cost of Debt, we use a 3.38% estimated “all-in cost” for the company based on
yield of the convertible senior notes as found in WWE’s 2016 10K. Then we use a 35%
corporate tax rate to yield a 2.19% after-tax Cost of Debt. Regarding the calculation of the Cost
of Equity, a 3.5% risk free rate that is based on the “normalized” 20-year yield on U.S.
government bonds and a 5% Market Risk Premium are used as Duff and Phelps suggests. We
also agreed not to add any small stock premium due to the relatively large size of the company.
Based on those considerations, we received a 7.95% Cost of Equity. In calculating the final
WACC value, we use the latest total interest-bearing debt and the market value of the equity to
calculate the weights of the capital structure.

Valuation Result and Sensitivity Analysis

Our team performed two approaches for our Discounted Cash Flow valuation: Gordon Growth
and Exit Multiple. For our Gordon Growth approach, we use a 2.5% perpetuity growth based on
the historical Compounded Annual Growth Rate of revenue in the Entertainment industry. Using
the forecast discussed in part A, a Weighted Average Cost of Capital discussed in the above
paragraph, and the 2.5% perpetual growth, the Gordon-Growth method results in an Enterprise
Value of $1.61 billion and an intrinsic value per share of $18.11 based on the current 77.1
million share outstanding.
For the Exit Multiple method, we used an average EV/EBITDA of 27.04. The number is
calculated using the six selected public comps, which we will also later use in Comparable
Company Analysis. Based on this multiple, we receive a higher terminal value of $1.87 billion,
as opposed to $1.71 billion calculated using Gordon Growth. As a result, the valuation yields a
higher Enterprise Value of $1.73 billion with $19.69 value per share.
To evaluate the impact of our assumptions, we performed a sensitivity analysis with a 1%
variability around our WACC. For the Gordon Growth approach, we added Perpetuity Growth
Rate to our sensitivity analysis with values ranging between 50 basis points above and below
2.50%. The valuation ranges from a low $13.63 to a high $26.52 per share. For the Exit Multiple
approach, we incorporate EV/EBITDA multiple to our sensitivity analysis using values from
26.04x to 28.04x with 1x increments. The valuation results in a per share value ranging from
$18.31 to $21.16.

Risks to DCF Valuation

Valuations using the DCF method comes with several risks that are associated with its
assumptions. First of all, the forecasted FCF for the upcoming years assume a positive and

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growing revenues while maintaining EBITDA margins. Not only does this assume an ongoing
well-managed operations within WWE, but this also assumes a growing market to create
sufficient demand. In our projection of revenues, our valuation heavily relies on our assumption
of the growth of the number of subscribers to the WWE Network, which is the key driver of the
company’s value. Because other segment revenues are also dependent on the projection of
Media Division revenues, changing the assumed growth rate for WWE Network subscription will
also change growth rates for other divisions. A sensitivity analysis with a growth rate 2% above
and below our assumed rate for WWE Network subscription produces the following per share
valuation:

Precedent Transactions
Since WWE operates in a media and entertainment industry that has been fairly active in M&A
deals, we looked at the multiple transactions that has occurred in the industry within the past 10
years. We deemed 10 years to be a fair time horizon as it allowed us to get a good sample size
of acquisitions, but on the other hand also ensured that we did not go too far in the past that the
market/economic conditions and prices of the transactions (such as during the 2008 market
crash) would differ from today’s market.
From the multiple transactions, we found six separate transactions (seen below) that had many
similarities with WWE’s business model and would be a fair comparable.

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UFC (Ultimate Fighting Championship) ​being one of the largest mixed martial arts (MMA)
organizations in the world that also gains most of their revenue through Online Subscriptions, TV
rights​, Live Events and merchandise, UFC could be said to be WWE’s closest true competitor.
Thus their acquisition by WME/IMG presented a very comparable transaction. Another sport
related transaction included Formula One (F1) World Championship Limited’s acquisition. F1 is
similar to WWE as it is heavily based on it’s sport niche market, TV and Live Events segment
and is also expanding its global presence. We also included more media and entertainment
companies such as Dreamworks, Entertainment One, Lionsgate and Marvel Entertainment Co.
as they all have their own niche and unique content such as WWE and they were all involved in
the production and distribution of their own content through TV, Films and other methods. The
similarity in business model also made these media and entertainment companies very good
comparables as well.
Taking the lowest and highest EBITDA from the selected transactions and multiplying it by
WWE’s 2016 EBITDA figure of 80.05 USD mn; the EV range (seen below) was calculated to be
a low of 664.42 (Value per share of $6.01) to a high of 2745.72 (Value per share of $33.00).
Thus, using the EBITDA multiple of the Precedent transactions to find the value of WWE, we
see an average EV Value of 1442.59 with WWE having an intrinsic value per share of $16.10.

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Overall, although this average EV of 1442.59 and intrinsic share value of $16.10 seem to be
relatively in line with the Gordon Growth approach with a share of value of $18.11, we must be
aware that this precedent transaction valuation method presents some risks as well. We have
tried to limit the transactions to companies that are very similar to WWE, however some of the
companies are larger than WWE so control premiums could be more expensive than potential
valuations for WWE. Furthermore the timing and market conditions although limited to the last
10 years to try minimize the effects of the 2008 market crash, the difference in market conditions
in the past few years could affect the valuation of WWE as the market currently is very different.

Comparable Companies Analysis

WWE’s average market multiples in year ended 2016 were: EV/EBITDA (19.42x), EV/Revenue
(2.02x), P/E (59.56x). Meanwhile, the average comp multiples that we came up with based on
the comps we chose were: EV/EBITDA (27.04x), EV/Revenue (2.66x), P/E (35.35x).
First of all, there is a difference in EV/EBITDA with WWE having a slightly lower multiple than
the comps average. This is due to Madison Square Garden’s EV/EBITDA of 81.85x in 2016
caused by the low EBITDA margin or high costs stemming from high direct operating expenses.
As for the EV/Revenue, WWE’s multiple is very similar to the comps average multiple. It is
probably a little bit lower because they might expect lower growth since they are in a more niche
market with fewer customers than the other competitors. However, the difference is not too big,
which indicates that WWE is performing similarly to the companies chosen for the comps.
For P/E, WWE’s multiple is way higher than the average comps. The low average P/E multiple
is contributed by CBS’s low P/E of 15.38x because it was experiencing a low stock price
performance for that year which is believed to be an undervaluation of the company based on
P/E ratios in the past 5 years.
We believe that it is hard to find comps that are truly comparable to WWE since WWE is
operating in such a niche market within the industry. It means that the other companies are not
exposed to the same market risks, since they are larger and more diversified. Moreover, since
WWE is not as large as some of the companies chosen as comps, they do not have the same
economies of scale and synergies. Therefore even though it is a good reference to have, it is
important to value WWE with other methods as well.

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Part C - Analysis of Strategic Alternatives
There are 2 options for WWE to consider in terms of acquirors: strategic buyer or financial
buyer. An acquisition by a strategic buyer, especially one with expertise in global distribution
and content creation in the entertainment industry, would be very beneficial to WWE since they
can possibly expand to new countries, create more diversified content and possibly streamline
their operations. On the other hand, a financial buyer who has expertise with media and
entertainment companies can provide the same operational advice and is more likely to allow
Vince McMahon and the current management to retain control of the company’s strategic future.
As observed in the structure of WWE’s stocks, we know that retaining control has been a top
priority for Vince and his management team. WWE has 2 classes of stock - Class A and Class
B. Most of the voting rights are owned by class B stock and 90% of those stocks are owned by
the McMahon family or people/organizations related to the McMahon family. This structure
clearly indicates Vince’s desire to remain in control.
Besides WWE’s interest in keeping decision-making control, it recognizes a need for greater
financial resources. In the company’s annual 10 K (page 8) report, it states that it “face[s]
increased competition from ​many ​streamed media c​ompanies ​with whom have greater
financial resources than [it] do[es].” ​They would need additional financial support moving
forward as they have plans to expand globally and to continue investing in their online WWE
network.
Thus with McMahon’s desire to remain in control combined with WWE’s need for greater
financial resources, we decided that ​a financial buyer would be the best course of action for
WWE.
A promising financial buyer is Shamrock Capital Advisors. As Shamrock looks to invest in
Media, Entertainment and Communications companies with strong management teams and
attractive business model, WWE is a good fit. McMahon’s strong management in WWE as well
WWE’s attractive niche market fits all the criteria of Shamrock’s typical investment. Furthermore
with a three to seven year time horizon and an investment size preference of $15 million to $100
million of equity, Shamrock presents an opportunity for injection of additional capital into WWE.
Another potential financial buyer is Providence Equity. ​It is a premier private equity with over
two decades of experience in financially investing in the media, communications, education and
information industries both in the US and globally. Providence Equity’s financial power and
experience with a global portfolio background makes WWE, a company interested in expanding
globally, a good candidate company for Providence to invest in.
Ultimately, we feel that Providence Equity and Shamrock Capital Advisors’ are good candidates
of financial buyers. They have large financial resources and are more likely to allow McMahon
to stay in control. Such can transaction gives ​WWE an opportunity to continue to realize its
ambitions of expanding globally and to compete in their online WWE network.

Page 15​ of ​27

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Appendix
Figure 1.1

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Figure 1.2

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Figure 1.3

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Figure 1.4

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Figure 1.5

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Presentation Slides

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