The Hamilton Ave Journal 11.04.10: Volume 2 – Issue 162

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 2 – Issue 162

ABOUT THE JOURNAL

The Hamilton Ave Journal is the only wrestling news report focused solely on the business of wrestling. Here in the Journal we not only look at the stories that are important to the investor and business-minded person, but also delve deeper into stories that most fans of wrestling would overlook. That is because the Journal is about getting the heart of the matters that affect the companies and outlooks of the wrestling world.

And where is Hamilton Ave? That is the location of the WWE Production Studio in Stamford, CT, and thus the most powerful place in the wrestling world. Besides, The East Main Street Journal just does not have the right ring to it.

Who am I? I am JP Prag: consultant, entrepreneur, businessman, journalist, and wrestling fan.

Now, ring the bell because the market is open.

The Journal’s front page area known as What’s News isn’t just about telling you what has happened. The stories in this section are about what will have an effect on the wrestling industry, individual federations, and the wallets of the fans.

TOP STORY: After the election, what’s next?

Although the election is now behind us and Linda McMahon is not a US Senator, the WWE could not help but cause more waves as the week went on.

It started right on Friday October 29, 2010 as Vince McMahon sent out WWE merchandise to various media outlets and Connecticut state representatives. The merchandise giveaways did not end there as the day before the WWE sent out this press release:

To celebrate the victory of restoring voters’ right to wear WWE® clothing at the polls, World Wrestling Entertainment® will be giving away WWE merchandise near select Connecticut poll locations on Election Day, this Tuesday, November 2nd.

“I can’t think of a better way for WWE fans to celebrate their constitutional rights and freedom of expression while voting than to proudly wear the WWE merchandise that Connecticut Secretary of State Susan Bysiewicz attempted to prohibit from the polls,” said Vince McMahon, Chairman and CEO, World Wrestling Entertainment.

Out of respect for voters from all political parties, WWE will not be handing out merchandise within 75 feet of polling locations, and merchandise will be available on a first come, first served basis.

Well, that apparently was where the line was drawn. On Monday November 1, 2010 this letter was sent to the WWE:

Dear Mr. McDevitt:

Re: World Wrestling Entertainment

The Department of Justice has recently received information that your client, World Wrestling Entertainment (WWE), might be providing or planning to provide free merchandise to voters at polling places. However, the available information also indicates that if this practice is actually planned or occurring, it is open and notorious. Accordingly, this letter is to advise you that WWE might be operating in ignorance of applicable federal criminal law, and to notify you of that law.

Specifically, Section 1973i(c) of Title 42 of the United States Code makes it a federal offense to pay or offer to pay an individual a thing of value for voting. Violation of Section 1973i(c) is punishable by imprisonment for up to five years and a fine not to exceed $250,000. Please note the Department’s understanding that this statute prohibits a person from providing a thing of value — such as clothing — in return for an individual’s participation in the voting process.

Thank you for your attention to this matter.

Sincerely,

Richard C. Pilger
Director
Election Crimes Branch

While it is a stretch to say the WWE was offering something to entice people to vote, the WWE decided that they, too, did not want to get into a long lawsuit. Just like the government backed down from the WWE’s lawsuit a few days prior, the WWE backed down immediately. From their press release:

Under this ambiguous threat of legal action by the U.S. Department of Justice, WWE has reluctantly decided not to give away WWE merchandise near select polling stations tomorrow.

Whether all of these actions helped or hurt Mrs. McMahon’s campaign is irrelevant now as with the election passed it is now not a consideration.

While some are hoping the end of the campaign means the end of the WWE youth initiative, one needs to realize that started long before the election and has led to the most profitable period in the WWE’s history. Ratings and PPV buys may not be at their peaks, but the WWE has been able to get more money from television and sponsors simply because of a better reputation and a different target audience. As such, this will be the WWE’s plan until it becomes less profitable, at which point they will change direction again.

Meanwhile, Linda McMahon gave her concession speech and touched on her old job as CEO of the WWE. Mrs. McMahon stated that she is not prepared to just jump into the company right now and it is unclear if she will return or will begin a campaign for a 2012 Senate seat.

Newsbites

Some items of note in the rest of the wrestling business world:

TNA has announced an “Eliminate the Hate” campaign to combat bullying. With bullying garnering more national attention than usual, TNA is hoping the good press will bring attention to the company, along with their intentions of actually ending bullying.

Eric Bischoff has confirmed that Spike TV has picked up an additional ten episodes of ReACTION beyond the original run. With the replays announced last week, Spike seems quite happy with the performance of ReACTION thus far.

THQ and the WWE have merged video game marketing services. From the press release:

THQ-developed, WWE-branded video games will be integrated into domestic and international events, pay-per-view and television sponsorships, magazines, WWE.com, WWE DVDs, and more. In addition, for the first time, THQ will host interactive gaming kiosks at 40 WWE live events. This significantly expands THQ’s previous marketing efforts concentrated around the launch of individual WWE video games.

“This strategic marketing agreement reflects the benefits of working more closely with WWE to maximize the interactive entertainment experience for fans of this leading sports entertainment brand,” said THQ President and CEO Brian Farrell. “We expect to increase awareness of our games through this new integrated program. Beyond that, we are expanding our WWE video game offerings with social applications and brand extensions to help WWE fans enjoy different interactive experiences throughout the year.”

On Monday November 1, 2010, the WWE announced their quarterly dividend of $0.36 a share for regular stockholders and $0.24 per share for members of the McMahon family. The payment will be made on December 27, 2010.

This morning the WWE will release their Q3 results. Per usual, the Journal will have a complete analysis next week.

In the Marketplace we look at the trends in television ratings. This section is less for critical analysis by the Journal but more for the reader to see what is really going on and to draw their own conclusions.

As with stocks, here in the Journal we track the progress of television ratings. If ratings are the barometer by which we judge the product, then over the course of time we should be able to see patterns, trends, and anomalies.

For the week ending Wednesday November 3, 2010, here are the current standings of the shows:

Analysis:

Coming in to Tuesday morning, it looked like it was going to be a rough week for wrestling ratings. iMPACT dropped 2.6% to a 1.13, which is the lowest in six weeks but still the ninth week in a row above a 1.0 rating. Facing heavy competition from new shows and the World Series (though the lowest rated World Series in years), TNA was not alone with a dropping number on Thursday night as SuperStars dropped another 5.4% to 0.53.

The trend continued on Friday as SmackDown took in their lowest rating since moving to SyFy at 1.68, a 3.5% drop. Still too new to the network to say if this is a trend, SmackDown is still outperforming what used to be in its timeslot and therefore SyFy is quite happy.

These gloomy numbers finally came to an end as RAW jumped 6.2% to 3.26, the highest rating in five weeks. Again, this one rating is not a trend as overall RAW has a four week moving average of 3.08. On November 2, 2009 that number was 3.45, a year-over-year decrease of 11%.

We all know that wrestling is a business, but we don’t often pay attention to what sells and makes money. Money and Investing looks into the top selling items in the world of wrestling and any interesting figures that may have come out this week.

What are the top selling items for the WWE? WWEShopZone.com releases a list of varying numbers to show what is selling for them:

1. Randy Orton Limited Edition T-Shirt ($29.99)
2. John Cena Cenation T-Shirt ($24.99)
3. Nexus Logo T-Shirt ($24.99, on sale $19.95)
4. The Miz My Name Is T-Shirt ($24.99)
5. Triple H Rex Cranium T-Shirt ($24.99)
6. Undertaker Limited Edition T-Shirt ($29.99)
7. John Cena Cenation Baseball Cap ($19.99)
8. John Cena Cenation Sweatband Set ($11.99)
9. D Generation X Army Cadet Cap ($20, on sale $3.00)
10. Nexus Armband ($7.99)
11. John Cena Cenation YOUTH T-Shirt ($21.99)
12. John Cena Never Give Up YOUTH T-Shirt ($19.99, on sale $17.95)
13. John Cena Never Give up YOUTH T-Shirt Package ($34.99)
14. John Cena Experience DVD/T-Shirt (with Bonus Signed Card) Package ($31.99)
15. Randy Orton Viper T-Shirt ($24.99)
16. Randy Orton Lobotomy T-Shirt ($24.99, on sale $19.95)
17. D Generation X Army Pendant ($10, on sale $2.50)
18. Randy Orton Viper Basics YOUTH T-Shirt ($9.99)
19. Edge Limited Edition T-Shirt ($29.99)
20. Randy Orton Viper Hooded Sweatshirt ($39.99)

For a second week in a row, those “limited edition” t-shirts took up quite a few spots on the list. With their high margin, these items can do nothing but bolter the WWE’s top and bottom line. Meanwhile, John Cena had some competition as he had seven spots while Randy Orton had five spots, including the number one. The Nexus also held on to two spots while the Miz, Triple H (and DX), the Undertaker, and Edge filled in the rest. While the Miz is no longer much of surprise in these pages, Edge holding a space for two weeks in a row is rarity.

TNA sometimes releases a list of top selling items on ShopTNA.com. According to the site the top selling items were:

1. Don’s Insane Brown Bag Special ($20)
2. Jeff Hardy “The Ring Is My Canvas” T-shirt ($19.99)
3. Jeff Hardy Arm Bands ($9.99)
4. Jeff Hardy Enigma T-Shirt (Glow In The Dark) ($19.99)
5. Mr. Anderson………People Are Fake T-Shirt ($19.99)
6. Mr. Anderson “A**HOLE” T-Shirt ($19.99)
7. Hulk Hogan Bandana ($9.99, on sale $7.99)
8. TNA The Best of the Asylum Years Volume 1 ($19.99, on sale $17.99)
9. RVD – Video Wall T-shirt ($19.99)
10. TNA Winged Warrior T-Shirt ($24.99)

The prior week will most likely be the last update for quite some time to come.

Wrestling isn’t just about watching and reading. The best way to be a wrestling fan is to experience it live. Where is wrestling coming to in the upcoming weeks? The Personal Journal answers that question.

Do you know a wrestling event coming up? Send one in to The Hamilton Ave Journal and we’ll be sure to add it to the list.

The Editorials section is designed for you, the readers, to respond to the views presented in the Journal, send an important news item, or talk about another overlooked business related item in wrestling. Just beware: the Journal reserves the right to respond back. Now, let’s break down the topics from last week’s commentary section:

PPV abroad

PPVs in Malaysia costs only RM19.95 (about US$6)
– AL

The interesting point regarding PPVs in the UK is they have only ever increased from £12.95 to £14.95 way back in the day (pre 2000). This must affect the WWE’s margins year on year.
– Ed

Malaysia has a population 28.3 million and GDP per capita of US$14,275 and the UK has a population of 62.1 million and a GDP per capita of US$35,082. The USA has a population of 310.6 million (third largest in the world) and a GDP per capita of US$47,701. As a percentage of overall impact on the company, anything that happens in the USA as a percentage change is going to have a much large effect on the company than a percentage change anywhere else. The only places this is not the case are India and eventually China. Europe as a whole is extremely important and can have the same impact—as can Australasia—but individual countries outside of the USA will have a hard time moving the WWE’s needle more than a percentage point.

TNA PPV 2011

Any word on TNA PPV in 2011? There is still no announced date for Genesis, or an announcement that they’re stopping monthly PPVs.
– John Bragg

Neither TNA, Universal Studios, PPV companies, or anyone else has any official dates for TNA PPVs in 2011. As of right now, Final Resolution on December 5, 2010 is the last event. TNA then tapes four weeks of shows for the rest of the week before taking the rest of the year off. Since the Royal Rumble is not until January 30, 2011, TNA does have plenty of weeks to chose from. Given that, TNA could have a PPV on January 2, 2011 (unlikely) or January 16, 2010. With the latter, TNA could tape two episodes of iMPACT on January 3/4, 2011 and then two more January 17/18, 2011 before heading to Europe. As of right now, though, nothing is official.

Cena = Nexus Sales?

How is Cena going to help Nexus sales? He wears an armband only and what is that: maybe 5 or 6 bucks for that thing?
– Rich

By being in an angle with Nexus, he raises their profile. So they get air time, customer awareness, and the impression that they are important. All of which influences sales. Sales did pick up after Cena joined Nexus.

Now take away Cena or any involvement with the main event and cover somebody like Primo Colon with Nexus gear and you won’t have any effect.
– Guest#4864

TNA’s Sales Chart

Sentimentally, I would like to see some TNA Originals succeed in merchandising. And perhaps it shows a lack of ability to develop and market home grown stars. This weakness is of greater concern if the main event talent pipeline is shut off or if TNA is unable to push the “outside” stars further.
However, as a company they should take talent where they can get it. Once in TNA, it should not matter where a wrestler made their name. They should just utilize what they have for maximum profit.

It can be said that the top homegrown TNA stars aren’t really homegrown, or not purely homegrown. AJ Styles was in the indies (NWA Wildside)when WCW called him up during their dying days. Styles and Samoa Joe were part of the first roster in ROH simultaneous to being in TNA. MCM were in Japan, PWG, and ROH first.

The question should be if TNA’s talent costs are efficiently converted to revenues – mainly through television contracts and merchandising. The TNA Originals seem to cost less, while WWE acquisitions cost more.
– Guest#9675

I got interested in your observation about TNA originals missing from the merchandise list. If it is a completely natural phenomenon (that is Bischoff and his marketing team being neutral to everyone) then this brings up an interesting point.

It seems the ex-WWE guys—especially Hardy—did bring some crossover audience which buys their stuff more than the TNA originals. In this light, I wonder why they don’t push someone like Hardy who was over as hell to do crossover with the other Spike and Viacom entities. He would be a super fit with the MTV/Spike type demographic.

In my humble opinion at one point he was arguably more “over” than Cena with the fans. I just think they are dropping the ball on this one. Controversy might create cash but good marketing decisions create cash cows! Your opinions on this one?
– Indianguy

In TNA, merchandise does not equate to the top and bottom line like it does in the WWE. However, making sure your talent cover their costs, as the first Guest notes, is quite important. As for the crossover, Viacom is not as quite well connected and share synergies like NBC-Universal does. While not to the levels (or lack thereof) that AOL-Time Warner had, Viacom is still not as completely put together and having the units work as one. You need so no more evidence than that fact that MTV has been working on at least one wrestling project instead of using TNA while even Spike had another wrestling-related show.

WWE Employees

Regarding the WWE contract dispute, has anyone asked WWE wrestlers what they’d prefer to be classified as? As employees they would have more benefits but surely any extra cost the WWE ensue would be taken straight out of the wrestlers pay.

Let’s say a wrestler is on $500k as an independent contractor and it costs the WWE $100k in benefits per year (insurance, 401k, etc). Wouldn’t the WWE just offer lower priced contract at $400k plus benefits? Meaning they’re effectively costing the company the same amount but meaning that the wrestlers are receiving less cash. The only advantage I see is that the company could get cheaper insurance rates due to collective bargaining.
– jayzhoughton

Well, as employees, they wouldn’t necessarily be getting a whole lot in the way of benefits. Look at what Walmart offers.

But yes, much of the costs would be passed on to the wrestlers. The general rule of thumb for traveling professionals (with benefits) is that they cost twice as much as their paycheck. The accounting, the taxes, benefits, and travel reimbursements. I assume the latter is already taken care of right now and WWE already covers medical expenses from injuries due to work.
– Guest#2229

Taking this a bit deeper, they would get three benefits that may make it worth it for them:

Social Security Disability and Medicaid

Workers Compensation

Unemployment

But at the end of the day, though, it does not matter what the talent want. The definition of an “employee” and “independent contractor” is a tax definition for the IRS and a few other government organizations.

For instance, you could not just walk in to Wal-mart and say, “I’ll work here, but only as an independent contractor. That way, I can take home more of my paycheck, you don’t have to pay the taxes, and we are all happy.” Even if that would be more beneficial to Wal-mart (and it would be), they cannot do that because the work you would be doing would be classified as “employee” work and therefore you would be an “employee”, despite whatever the contract says. It is called an employee misclassification and comes with a large number of fines and an indeterminate number of years of back fees.

What makes someone an employee? Well, all the way from Issue #47 of the Journal on August 16, 2008:

So how does one determine if they are an employee? While Mr. Bischoff tried to use the 17-step test from 1992, the IRS actually uses a 3-prong test nowadays. Should the employer/worker relationship fall into just one of these categories that worker can easily be called an “employee”. Those categories are, according to the IRS:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Let’s break these down one at a time and answer some of the IRS’s sub-questions (IRS questions/comments in italics):

Behavioral

Types of Instructions Given

An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work.

When and where to do the work.

What tools or equipment to use.

What workers to hire or to assist with the work.

Where to purchase supplies and services.

What work must be performed by a specified individual.

What order or sequence to follow when performing the work.

The WWE definitely controls where and when their contractors work. They decide what shows they are on and not and if they can take outside bookings. They also control the specific tasks (how a match is laid out, what to say in a promo, etc…) and the sequence of tasks. They also provide much of the supplies, such as outfits and work areas.

Degree of Instruction

Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.

In the past, the WWE would have fallen into the “less-detailed” category, but in recent years that has changed. Writers, producers, agents, managers, etc… all tell wrestlers how to specifically perform their jobs. Having a development system that “trains” the wrestlers in the style and method to work also controls how they are instructed.

Evaluation System

If an evaluation system measures the details of how the work is performed, then these factors would point to an employee.

If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.

WWE performers are given feedback on their matches, promos, merchandise, backstage behavior, and more. There is no end-result to measure against since it is on-going work.

Training

If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.

FCW is enough proof of this one.

Financial Control

Significant investment

An independent contractor often has a significant investment in the equipment he or she uses in working for someone else. However, in many occupations, such as construction, workers spend thousands of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment. Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.

WWE workers typically spend a lot of their own money to get where they are and have to pay their own way for training, vitamins, doctors, etc… that could all be considered their “tools”. Then again, the WWE provides everything else from the working environment to e-mail addresses.

Unreimbursed expenses

Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their business.

Generally, wrestlers pay their own way, although the WWE will book hotels and flights for them. Still, many wrestlers have in their contracts these items as perks. But, even as employee the wrestlers could still pay for flights, hotels, and such and write it off at the end of the year.

Opportunity for profit or loss

The opportunity to make a profit or loss is another important factor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work). Having the possibility of incurring a loss indicates that the worker is an independent contractor.

In the WWE, workers have a downside guarantee but can still lose out of their expenses are too high.

Services available to the market

An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.

This is absolutely not possible. Workers have in their contract clauses that do not allow them to even speak to competition while they are under contract to the WWE. And even after release, most of the workers are not available for 90-days due to extended no-compete clauses.

Method of payment

An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.

Even while injured, WWE workers have a downside guarantee. So although they are providing so services, these people are still paid.

Type of Relationship

Written Contracts

Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.

Therefore, the contracts are meaningless in face of other evidence.

Employee Benefits

Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance. Businesses generally do not grant these benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.

And this is the crux of the lawsuit.

Permanency of the Relationship

If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Contracts generally have determined lengths of time (3-5 years), but most expect to just negotiate new contracts and continue the relationship.

Services Provided as Key Activity of the Business

If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.

The WWE makes the vast majority of their revenue off of the work of the wrestlers, therefore the activity of the workers would be key to the business.

Last Words

For those who missed it in this week’s Small-For-All News Report, next week will mark the last edition and the retirement of Jeff Small from 411mania. Be sure to pop over and leave a comment for Mr. Small for his five years of service bringing us dime-store rag-magazine gossip, Great Khali love, and references to shows only eleven year old girls watch.

Plenty more was written, so be sure to take a look. And if you enjoy the Journal, why not bookmark 411wrestling.com and make it your home page? You can do that by clicking here.

This concludes Issue #162 (Volume 2) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.

Till then!