The Oklahoma Firefighters Pension and Retirement System has filed a lawsuit against World Wrestling Entertainment (WWE), which the plan owns shares in, charging that its chief had mis-allocated company money.
Specifically, the pension’s motion states that there is “a credible basis from which to infer” that WWE Chairman Vince McMahon usurped a corporate opportunity for XFL, his own personal private venture, and diverted resources from the WWE to support it.
XFL is a professional American football league owned by McMahon’s Alpha Entertainment that originally launched in 2001 and ran for a single season. McMahon recently revealed that Alpha intends to revive the league with a 10-week season beginning in 2020.
“Plaintiff [the Oklahoma Firefighters Pension and Retirement System] has a credible basis to believe that McMahon and potentially other senior officers of WWE may have breached their fiduciary duties by usurping WWE’s corporate opportunities and diverting resources from WWE to McMahon’s newest business endeavor, the XFL,” the court documents read.
“Plaintiff also has a reasonable basis to believe directors of WWE may have breached their duties by failing to conduct oversight to ensure that those corporate opportunities were not usurped, that those resources were not diverted, and that McMahon did not engage in transactions that constitute a conflict of interest with WWE.”
The pension owns 107 shares worth about $6,867 of WWE stock.
Alpha Entertainment purchased the intellectual property of XFL from the WWE, and the pension wants to investigate the merits of the transaction. Inquiries include if Alpha Entertainment paid fair market value to the WWE for the intellectual property of the XFL, including giving WWE a percentage of the company, and if Alpha is paying fair market value for the support services that WWE is providing as part of the deal.
Although the WWE may have benefitted from the development of the XFL, the pension said, “it appears that McMahon set about to exploit the WWE’s XFL-related asset for the benefit of himself personally and to the exclusion of the WWE.”
The WWE sold its XFL rights to McMahon’s Alpha Entertainment for $1 million, plus an undisclosed equity interest that at the time was valued at zero dollars, the court documents state. “Those property rights, however, may have been worth far more than $1 million.” They pointed to a separate occasion where an acquisition offer was made to the company for $50 million.
A few other conflicts of interest were brought to the attention of the Court of Chancery of the State of Delaware. One was that law firm K&L Gates was advising both the seller and the acquirer in Alpha’s purchase of XFL rights from the WWE.
Another conflict was that McMahon’s attention, which the WWE has repeatedly said “are essential for the company’s value and its future performance,” would be compromised under his split responsibilities managing both Alpha Entertainment and the WWE.
McMahon’s employment agreement with the WWE also says he must not participate “in a business competing with the professional wrestling or other core businesses conducted by the [WWE] or any of its affiliates. According to the pension’s litigation, the WWE has clearly defined its competition as “professional and college sports, other lived, filmed, televised, and streamed entertainment.” Given the XFL is a professional sports league, McMahon’s new responsibilities in managing the organization are a clear breach of his obligations to the company, the pension alleges.