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WWE ISSUES UPDATE ON LAWSUITS AGAINST COMPANY, RELATIONSHIP WITH VINCE MCMAHON'S ALPHA ENTERTAINMENT AND MORE

By Steven Fernandes on 2020-07-31 13:52:00

WWE noted the following in their recent 10-Q SEC filing: 

Investment in Draft Kings:

"During the three months ended June 30, 2020, one of our nonmarketable equity investments, DraftKings Inc, (“DraftKings”), an online fantasy sports and betting platform, completed a business combination and became a publicly traded company with its common stock traded on the NASDAQ under the symbol DKNG starting on April 24, 2020. As a result of the business combination, WWE received common stock of the new publicly traded DraftKings company in exchange for its common shares WWE owned in the investee. The Company is subject to a 180-day lock-up period on the common shares. As of June 30, 2020, our investment portfolio includes two investments in marketable equity securities of publicly traded companies, both of which trade on the NASDAQ. The Company accounts for these equity investments in the common stock of Phunware Inc. (“Phunware”), a software application developer, and DraftKings, as marketable equity investments with readily determinable fair values based on quoted prices on the NASDAQ. During the three and six months ended June 30, 2020, the Company recorded a net unrealized gain of $7,945 and $7,770, respectively, associated with these two investments based on the closing prices of the investee companies as of the last trading day of the period. During the three and six months ended June 30, 2019, the Company recorded an unrealized holding loss of $3,597 and $3,791, respectively, associated with Phunware, based on the closing price of the investee company as of the last trading day of the period. Unrealized holding gains and losses are included as a component of Other (expense) income, net in the Consolidated Statements of Operations. As the underlying stock prices of DraftKings and Phunware fluctuate, WWE is exposed to future earnings volatility to the extent WWE continues to hold these investments."

Vince McMahon's Alpha Entertainment:

"In April 2018, the Company entered into a support services agreement with Alpha Entertainment, LLC (“Alpha”), an entity controlled by Vincent K. McMahon, for certain administrative support services with such services billed to Alpha on a cost-plus margin basis. During the three and six months ended June 30, 2020 and 2019, the Company billed Alpha $130 and $837, and $948 and $2,154, respectively, for services rendered under the support services agreement. On April 13, 2020, Alpha filed for Chapter 11 bankruptcy. As of June 30, 2020 and December 31, 2019, the Company had $541 and $236, respectively, of current receivables for amounts billed to Alpha."

Lawsuits against the company:

"On March 6, 2020, the Company along with its Chairman and CEO, Vince McMahon, and former-WWE officers and directors, Michelle Wilson and George Barrios (collectively, the “Individual Defendants”), were sued in the U.S. District Court for the Southern District of New York in a case captioned City of Warren Police and Fire Retirement System, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon, George A. Barrios, and Michelle D. Wilson, No. 1:20-cv-02031-JSR. The complaint alleges that the Company and the Individual Defendants made materially false and misleading statements in violation of the Securities Exchange Act of 1934 regarding WWE’s strategic relationship with the Kingdom of Saudi Arabia. Specifically, the complaint alleges that various public statements made by the Company and the Individual Defendants were false and misleading because they failed to disclose certain adverse facts regarding WWE’s strategic relationship with Saudi Arabia that supposedly was known by them and, as a result, the plaintiff class allegedly purchased WWE stock at artificially inflated prices. On March 12, 2020 a nearly-identical lawsuit was filed in the U.S. District Court for the Southern District of New York captioned Paul Szaniawski, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon, George A. Barrios, and Michelle D. Wilson, No. 1:20-cv-02223-JSR. This lawsuit was filed as related to the City of Warren case and has been assigned to the same judge handling the City of Warren case. By Order dated May 12, 2020, the City of Warren and Szaniawski lawsuits were consolidated for all purposes. After multiple parties filed motions to be appointed lead plaintiff for the putative class in the consolidated action, on May 22, 2020, the Court issued a memorandum order selecting the Firefighters’ Pension System of the City of Kansas City, Missouri to be lead plaintiff and their attorneys, Labaton Sucharow LLP, to be lead counsel for the putative class. On May 26, 2020, the Company served Rule 11 motion for sanctions on the attorneys for the City of Warren Police and Fire Retirement System, the attorneys for Paul Szaniawski, and Labaton Sucharow LLP. The Rule 11 motion identified false allegations in the originally filed complaints and was supported by six declarations from Company executives and third-parties with direct first-hand knowledge of the matters at issue. Following service of the Rule 11 motion, the attorneys for the City of Warren Police and Fire Retirement System and the attorneys for Paul Szaniawski voluntarily dismissed their complaints before the expiration of the Rule 11 safe-harbor period. On June 8, 2020, the Firefighters’ Pension System of the City of Kansas City, Missouri filed a consolidated amended class action complaint. On June 26, 2020, the Company moved to dismiss the consolidated amended complaint in its entirety. The Court has scheduled oral argument on the Company’s motion to dismiss for July 30, 2020.

Additionally, three purported shareholder derivative suits have been filed against the members of the Company’s Board of Directors patterned after the securities class action complaints filed in the U.S. District Court for the Southern District of New York. Merholz et al. v. Vincent K. McMahon et al, No. 3:20-cv-00557-VAB, was filed in the U.S. District Court for the District of Connecticut and assigned to the Honorable Victor A. Bolden. On May 29, 2020, the Company served Merholz’s counsel with a Rule 11 motion that identified the false allegations in the complaint. On May 19, 2020, Merholz filed an amended complaint prior to the expiration of the Rule 11 safe-harbor period, which is substantially similar to the consolidated amended class action complaint filed in the securities class action. Because Merholz’s amended complaint continued to assert allegations that were proven to be false by the Company’s Rule 11 motion regarding the original complaint, the Company served Merholz’s counsel with a Rule 11 motion regarding the amended complaint on July 2, 2020. Kooi et al. v. Vincent K. McMahon et al., No. 3:20-cv-00743-VAB, was originally filed in Connecticut Superior Court and was removed by the Company to the U.S. District Court for the District of Connecticut on June 1, 2020. The Kooi lawsuit was deemed to be related to the Merholz lawsuit and transferred to Judge Bolden. On June 8, 2020, Kooi filed a motion to remand the lawsuit to state court. The Company filed its opposition to the motion to remand on June 29, 2020. Following Kooi’s affirmation of the allegations of the complaint in federal court by filing the motion to remand, on June 12, 2020, the Company served Kooi’s counsel with a Rule 11 motion similar to that served on counsel in the Merholz lawsuit. On July 3, 2020, Kooi filed an amended complaint that withdrew the false allegations identified in WWE’s Rule 11 motion. Nordstrom et al. v. Vincent K. McMahon et al., No. 3:20-cv-00904-VAB, was originally filed in Connecticut Superior Court, and also removed by the Company to the U.S. District Court for the District of Connecticut on July 1, 2020. The Nordstrom lawsuit was deemed to be related to the Merholz and Kooi lawsuits and was also transferred to Judge Bolden. On July 2, 2020, the Company moved to consolidate the Merholz, Kooi, and Nordstrom lawsuits for all purposes. The Company is currently scheduled to file its motions to dismiss the complaints in the Merholz, Kooi, and Nordstrom lawsuits on August 7, 2020."

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