Strategic Management: Text and Cases 8 Chapter 22

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Teaching Note: Case 22 – World Wrestling Entertainment

2. To examine how tangible and intangible resources are tied to a firm’s success.

See the table below to determine where to use this case:

Chapter Use

Key Concepts

Additional Readings or

Exercises

12: Managing

Innovation

Innovation; scope of innovation;

entrepreneurial orientation

See NOTE additional reading

interview with Vince McMahon

6: Corporate-

Level Strategy

Corporate strategy; diversification;

synergy; related and unrelated

diversification; growth for growth’s

sake

View a video link of WWE’s

2009 shareholder’s meeting

with Linda & Vince McMahon

3: Internal

Analysis

Resource-based view of the firm

Watch videos at the WWE

website (links embedded in this

case) to set the stage

4: Intellectual

Assets

Intellectual and human capital;

dynamic capabilities

View the NOTE to visit

WWE’s marketing website

Case Synopsis

World Wrestling Entertainment (WWE) announced on January 27, 2015, that its WWE

Network, which had been launched just 11 months earlier, had surpassed one million subscribers,

making it the fasting-growing digital subscription service. Vince McMahon had taken over a

small wrestling business from his father and built it into a large national business. For years, the

firm managed to show consistent growth by attracting more and more fans. In an effort to

diversify, in 1999, shortly after going public, WWE launched a eight-team football league called

the XFL. Unfortunately, the football venture did not prove successful and resulted in a $57

million loss for WWE. Subsequently, WWE had struggled with its efforts to build new wrestling

stars; the attendance at its live shows began to drop off, and advertising revenues declined as

well. In part, this may have resulted from a saturation of the market for wrestling, but the

lackluster financial results might also have been attributed to the failure of WWE’s efforts to

diversify away from wrestling.

In the years since that misstep, CEO Vince McMahon explored new avenues of growth and

turned pro wrestling into a perpetual traveling road show. WWE used wrestling’s increased

popularity to build up a stronger ad-supported Internet presence, where content can be watched

24/7, and the firm even expanded into feature film production with its wrestling superstars.

During 2015 WWE celebrated the popularity of its YouTube channel success, attracting over one

million subscribers to its original WWE Network programming. The firm also staged over 330

live events a year, and by 2014 had produced almost 70 live shows outside the United States,

helping to boost the worldwide revenues that the firm was able to generate from its merchandise.

In addition, an exclusive multiyear agreement with Hulu Plus brought WWE programming to

video streaming users, and mobile apps for smartphones and tablets had taken off, with the WWE

Active being downloaded 3.5 million times since its launch in 2012.

Regarding competition, the firm has had to face a challenge from mixed martial arts (MMA), a

growing form of combat sport that combines kickboxing and grappling. Because of its similarity

to wrestling, this new sport might pull away some of WWE’s fans. The question remained: could

WWE identify opportunities for further diversification and expansion to maintain its current

success?

Teaching Plan

This can be a fun case. While not all students have seen a WWE wrestling match, there is usually

at least one fan in a class. This person’s enthusiasm seems to energize the room. Although the

focus is primarily on how to grow a business with an innovative business model, the importance

of identifying and leveraging both tangible and intangible resources is key to the discussion.

Therefore, this case can be positioned fairly early in the course to prepare students for the more

formal (and boring) corporate strategy discussions to follow.

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign,

and also which additional readings or exercises to include to augment each discussion. Refer

back to the Case Objectives Table to identify any additional readings and/or exercises so they

can be assigned in advance.

This case can start with an icebreaker. Ask students how many of them have seen a professional

wrestling match, and whether this was on TV or in person. Ask students who are fans of WWE

why they are fans. The answers may be more about the entertainment value, the story lines about

good and evil, the “feuds” between players and between players and management, and the

“bodies” (pumped-up muscled hunks and buxom, scantily-clad beauties), rather than the

athleticism or the sport.

Here’s where a quick visit to the WWE website at http://www.wwe.com/worldwide/ and a look

at video highlights at http://www.youtube.com/user/WWEFanNation can get the class excited.

Before engaging in discussion, you might want to test student’s basic knowledge regarding the

case and the major concepts. Here are some multiple-choice questions to use. (This will get the

student’s attention – they can’t answer these if they haven’t read the case!)

Which statement is most true?

a. WWE used to own a football team.

b. WWE has a line of toys.

c. CEO Vince McMahon was a juvenile delinquent.

d. Each WWE “performance” is scripted, and sometimes the script changes in the middle of

the show.

1. What corporate innovation strategies did Vince McMahon use to grow World Wrestling

Entertainment?

2. What resources does WWE have and how valuable are they?

3. What are the future prospects for WWE? What should be done to expand or grow the

business?

1. What corporate innovation strategies did Vince McMahon use to grow World

Wrestling Entertainment?

Referencing Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship

Innovation involves using new knowledge to transform organizational processes or create

commercially viable products and services using the latest technology, experimentation, creative

insights, and information from competitors.

Some of challenges of innovation involve choosing when and how to continue to innovate, the

scope of future innovation and the pace, as well as whether or not to collaborate with innovation

partners. The innovation of new ventures requires resources such as financial, human, and social

capital; requires the leadership team to have adequate vision, dedication and drive.

Before proceeding, firms must first define the scope of the innovation efforts, and they must

ensure that their innovation efforts are not wasted on projects that are outside the firm’s domain

of interest. In defining the innovation scope, a firm should answer several questions:

● How much will the innovation cost?

● How likely is it to actually become commercially viable?

● How much value will it add; that is, what will it be worth if it works?

● What will be learned if it does not pan out?

Vince McMahon needs to make sure the above questions are answered before committing the

organization’s resources.

Vince took after a small wrestling operation and turned it into a large and growing national

business by taking several steps: he began to challenge the existing regional structure of the

wrestling business. This was accomplished in part by taking his matches around the country to

various large and medium sized cities. He also began to sign up local television stations around

the country to broadcast his matches. Through such moves, co-opting local partners, he began to

build a national audience.

He broke with established tradition by admitting to the public that wrestling matches were

scripted. He had the creative insight to use the storylines and characters to build up an audience

for his matches. Vince was good at applying this soap opera style to the wrestling business.

Vince kept up the pace, gradually driving out most of his smaller competitors though his

aggressive expansion. Eventually, he brought out his last remaining major competitor, Ted

Turner’s World Championship Wrestling for a bargain price of $5 million.

Even though McMahon took risks, he also was quick to learn from his mistakes. Once he

learned, he showed an almost uncanny ability to turn his various enterprises into commercially

viable businesses.

Organizations must have the entrepreneurial orientation necessary to succeed in a new venture.

Students should assess the vision, dedication and drive, and commitment to excellence

demonstrated by the management team; the degree of autonomy, innovativeness, proactiveness,

competitive aggressiveness, and risk taking, and the implications of this for the organization’s

culture. See Chapter 12, Exhibit 12.3.

Interestingly, Vince McMahon has exhibited each of these dimensions in making WWE what it

is today. In short, he has used his autonomy (first buying the firm from his father and then

running the firm as a family business), innovation (pay-per-view, scripted matches, etc.), was

proactive (looking for the same content to be distributed in multiple channels), competitively

aggressive (reacting to Ted Turner’s World Championship Wrestling), and took risks (the XFL,

etc.).

NOTE – ADDITIONAL READING ASSIGNMENT:

This link offers quotes from Vince McMahon discussing WWE’s rebranding in April of 2011 –

WWE will no longer stand for World Wrestling Entertainment. It will just be WWE, plain and

simple: http://articles.latimes.com/2011/apr/07/business/la-fi-ct-wwe-20110407

McMahon discusses several potential new WWE ventures, some of which may require them to

expand beyond their core, move them “beyond the wrestling mat.” However, as one analyst says,

“Clearly, their prospects in terms of growth are limited if they stick to their knitting.” Which of

these ventures offers the highest profit potential in your opinion? Which ones might be most

successful?

Referencing Chapter 6: Corporate-Level Strategy

Corporate strategy focuses discussion on the questions of what businesses a corporation should

compete in, and how the businesses should be managed so they can create “synergy” – creating

value through entering new markets or developing new technologies, either through related or

unrelated diversification.

Diversification is the process of firms expanding their operations by entering new businesses.

When achieving synergy through diversification, a firm has two choices: related diversification

through horizontal relationships with related businesses, sharing tangible and intangible

resources, and leveraging core competencies; and unrelated diversification through hierarchical

relationships with unrelated businesses. In this case, value creation derives from the corporate

office by leveraging support activities.

Vince’s efforts to diversify have not always been well thought out. He appears to have had

difficulty in following a path of related diversification. As the chapter in the text indicates,

related diversification enables a firm to benefit from horizontal relationships across different

businesses in the diversified corporation by leveraging core competencies and sharing activities.

WWE’s expansion into books, music, and merchandise has been relatively successful as a

method of leveraging its core competencies in wrestling. However, WWE’s success with other

ventures that were based on sharing activities has been more questionable. Although its moves

into online entertainment have fared quite well, efforts to build a restaurant around the wrestling

theme failed to generate any profits.

WWE’s boldest effort at diversification in the form of XFL suffered from a lack of links to the

wrestling base. Football is already established as a spectator sport with its own rules and

procedures. Vince was not able to sufficiently differentiate his form of football from what had

already been offered. In particular, football relied less on characters because it is more of a team

sport and was not scripted in a way that could allow for the development of a storyline. WWE’s

core competency in combining athletic prowess with mass entertainment did not match the

requirements of a professional football league.

The plans to push for more investments into television shows and motion pictures would draw

off some of the entertainment aspects of the wrestling operation. But these were very expensive

and highly risky ventures. Vince was being smart by partnering up with established firms in

these businesses. It is important to emphasize that WWE is not large enough to be able to gain

any significant advantages from unrelated diversification of the sorts that are described in

Chapter 6.

A question that should be raised is this: what effect has McMahon’s diversification effort had on

WWE? It is likely that the McMahon’s diversification efforts in the pasts (into the XFL and

other ventures) had taken the firm’s eyes off of its core business. During the time of significant

diversification, WWE faced a number of challenges. A British court ruled that the WWF

acronym belong to the World Wildlife Fund and not to the McMahon’s operations. This

necessitated a rebranding of the company as WWE. The name change cost money to the

company. However, the company believed that the market would react favorably to the “E” in

WWE, which stands for entertainment. It appears that this has been the case.

WWE faces growing competition from new sources, such as reality based television shows.

These shows attract the same demographic (the 12-34 age group) that watches WWE shows. The

McMahons have to continue to differentiate WWE’s shows so that the audience remains

attracted, even toning down the sex and violence to make their shows more family friendly. This

might help WWE compete with the growth of mixed martial arts in the form of the Ultimate

Fighting Championship (U.F.C.) and International Fight League.

When organizations grow, it’s important to be aware of possible detrimental managerial

behaviors that indicate managerial self-interest, such as egotism or growth for growth’s sake.

These can erode the creation of a firm’s value. Vince McMahon’s public persona appears to be

highly driven by his ego. His daughter, Stephanie, was heavily inserted into the character line-up

as both a wrestler and a good vs. evil figure in the continuing struggle for control between family

members (part of the story line). She is married to Triple H (Paul Levesque), one of the wrestling

superstars. Does this pose a problem for the firm’s future growth?

Stephanie McMahon Levesque is on the management team, as Chief Brand Officer. Her

2. What resources does WWE have and how valuable are they?

Intangible Resources:

NOTE: Check out how WWE markets their personality superstar John Cena:

3. What are the future prospects for WWE? What should be done to expand or grow the

business?

The McMahons seem to have reacted well to the challenges the company faced following the

unsuccessful diversification moves. The company is now looking at more focused related

diversification that plays to WWE’s core competence, such as the YouTube channel original

programming and the relationship with HuluPlus. They may also increase the number of road

shows to provide more content. The firm is also looking at multiple distribution channels for the

content. There are talks about a 24/7 subscriber video channel, movie production using well

known characters, and foreign expansion. The McMahons have turned pro wrestling into a

perpetual traveling road show. They built up a stronger ad-supported Internet presence and even

expanded into feature film production with wrestling superstars. Moreover, WWE has been

increasing the number of live shows, including more in overseas locations. The company seems

to have learned its lesson from unprofitable diversification and is now better focused on its core

business.

The succession issue is important for this tightly controlled business. At present, Vince

McMahon runs the company. Wife Linda was heavily involved until she left to run for Senate in

2009 and 2012 (in Connecticut – she was not successful). Daughter Stephanie is immersed in the

business. Son Shane was involved but has left to pursue his own interests. The point here is

whether Shane and Stephanie will have the experience to run the company when their parents

step down. Shane has experience with the company’s international business while Stephanie

works in the creative side. Their parents have given them managerial responsibilities to ensure

that they have the necessary exposure to hold senior positions. Hopefully this will ensure that the

transition is smooth. While WWE is a publicly owned company, the McMahons control it. It is

debatable whether the company would be better off if the family did not control it. After all,

Vince is the creative force behind it and Linda used to provide the day-to-day management. If

their children can take over and provide the same creative and administrative spark that their

parents bring to the company, there is no reason to look outside the family.

NOTE – VIDEO VIEWING POSSIBILITY:

Watch the video of the first fifteen minutes of the 2009 WWE annual shareholders meeting

linked here:

http://wwevideowm.fplive.net/wwevideo/wmv/adhoc/corporate/200905/shareholders2009_750.

wmv

Both Linda and Vince McMahon lead the shareholders meeting. It might be interesting to WWE

fans to see the different personality Vince portrays in this corporate setting.

To what extent do you believe WWE will be successful in their diversified entertainment

venues? More generally, after listening to Vince and Linda McMahon discuss WWE, would you

be more or less likely to invest in WWE stock yourself? Why?

ADDITIONAL CASE INFORMATION:

One other issue facing the wrestling entertainment industry threatens its continued viability: the

use of steroids and other risky lifestyle choices has contributed to the early deaths of dozens of

wrestlers. Read the linked article from 2004 and watch the accompanying audio slideshow:

http://www.usatoday.com/sports/2004-03-12-pro-wrestling_x.htm

http://www.usatoday.com/money/graphics/wrestle/bigaudiotemplate/flash.htm

In 2007, after the deaths of several more wrestlers, including the double-murder/suicide of WWE

wrestler Chris Benoit, the WWE announced the suspension of 10 of its wrestlers for violation of

its “wellness policy”:

http://sports.espn.go.com/espn/news/story?id=2998062

The WWE will continue to come under scrutiny for this, specifically by the U.S. House

Committee on Oversight and Government Reform regarding their talent wellness policy. (See

WWE’s code of business at http://corporate.wwe.com/governance/code-of-business-conduct and

full drug testing policy here: http://corporate.wwe.com/wellness/substance-abuse-drug-testing-

policy ) What is WWE’s responsibility, and is there anything further WWE should do here?

Does this threaten WWE’s growth prospects internationally?