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This case was prepared by Mike Awad (MBA ’00) and Lindsey Houser (MBA ’00) under the supervision of R. Edward Freeman, Elis and Sigma Olsson Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2001 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

ERIC BISCHOFF AND WORLD CHAMPIONSHIP WRESTLING

Late in the day on Friday, March 31, 2000, Eric Bischoff, the newly re-appointed president of World Championship Wrestling (WCW), returned to the office he had occupied during WCW’s glory days. As he sat at his desk overlooking downtown Atlanta, he thought about what plan he would present at his upcoming meeting with executives of WCW’s parent company, Turner Entertainment, a division of the Time Warner entertainment conglomerate. Earlier that week, Brad Siegel, president of Turner Entertainment, announced that WCW would be shutting down and essentially starting over from scratch. That meant that the following week’s live-event programming would be canceled, and WCW would unveil its new product in mid-April.

The previous year had been terrible for the WCW. Their rival, the World Wrestling Federation (WWF), had dominated all aspects of the industry; WWF had the most popular wrestlers and the highest ratings on television. In addition, top wrestlers from the WCW and other promotions had defected to the WWF, draining WCW’s talent pool and boosting that of the WWF. WCW management was in turmoil; no response to the WWF seemed to be working with viewers, and the slide resulted in an estimated loss of more than $30 million in 1999. It was up to Bischoff to convince Siegel and others that the direction in which he wanted to take WCW was the right one and that his new strategic plan would return WCW to the top of the professional wrestling industry. The History of Professional Wrestling

George Washington, Abraham Lincoln, and Teddy Roosevelt share much in common with George “The Animal” Steele, Andre the Giant, and Hulk Hogan, just to name a few. That’s right: Our illustrious forefathers were at one time also wrestlers. Although their style differed somewhat from the late 20th century’s highly commercialized and entertaining television spectacle, it was still a mix of “Greco-Roman” (known as the true sport with no holds permitted below the waist or the use of legs for pinning an opponent) and “Rasslin’” (high-flying entertainment with a no-holds barred foundation). Of the ex-presidents who wrestled, Abraham Lincoln was the most famous, often testing his skills in barroom matches in Springfield, Illinois.

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In the Great American Sports Book, George Gipe recounts a particular match in which Lincoln battled a well-known street fighter named Jack Armstrong. People came from more than 50 miles away to witness the match; the betting was heavy and strongly in favor of Armstrong. “[B]ut once the fight started,” Gripe writes, “it was no contest.” “Lincoln lifted him by the throat,” writes Lincoln biographer Carl Sandberg, “shook him like a rag, and then slammed him to a hard fall.” All of this took place before his election to the presidency, but still comes as a shock to most.1

The sport of wrestling dates back to ancient times. From the Greek legends through the Middle Ages, wrestling was a sport and activity that drew enthusiastic crowds. Irish and German immigrants introduced it to America, however, as a barroom sport. In these “fights,” two opponents held each other’s collar with one hand and elbow with the other (“collar-and-elbow” style). After this initial hold, the match developed into a long—often several hours or more— display of bear hugs (wrapping the arms around the body), leg scissors (wrapping the legs around an opponent’s torso), and other submission holds designed to get the opponent to quit because of pain or an inability to escape from the hold.

These matches were entertaining, but served a limited audience and died out by the start of the Civil War, although during that conflict there were often matches between the Union and Confederate soldiers. After the war, many of the soldiers became wrestlers, joining carnivals and circuses. Wrestling became one of the many sideshows and was both popular and profitable for the “carney” (slang term for the person in charge of the various sideshows at a carnival). Ordinary people came from all around to try their luck against a “professional” athlete. Many paid dollar after dollar for the opportunity to win $20 by simply throwing the wrestler out of the ring or staying in the ring themselves for 15 minutes. They didn’t realize, however, that they were victims of what the carneys had up their sleeves: “hookers” and “hoaxes.” Hookers were the most skilled wrestlers, and they used numerous hooks to drop an opponent; hoaxes were tricks the carneys used to ensure victory. If a challenger appeared close to winning, the wrestler (hooker) would draw the opponent back near the curtain where a hidden cohort would knock the contender unconscious with a board or bat. During this post-war era, promoters started touring the country to drum up interest and money for these matches.

In the late 1800s and early 1900s, immigrants provided the stable for the wrestling matches in America. One famous wrestler, George “the Russian Lion” Hackenschmidt, came to America as Europe’s greatest champion and drew huge crowds at his matches. His most famous match was against Frank Gotch (an Iowa-born grappler) in 1911 and grossed more than $85,000. It also marked the end of this era for the sport. Before that match, Gotch, fearing he might lose, sent a spy into Hackenschmidt’s training camp. This spy injured the wrestler during training, but the promoters had already spent most of their money so the match went on as scheduled. Prior to this match, Gotch had agreed to let Hackenschmidt make a couple of takedowns, but he didn’t keep his word and pinned the Russian Lion early in the match. Disappointed fans, after learning

1 David Hofstede, Slammin’—Wrestling’s Greatest Heroes and Villains (ECW Press, 1999), 4.

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the truth a short time later, turned their backs on both the sport and the era that started the transformation of wrestling from sport to entertainment.

It did not take long, however, for professional wrestling to resurface. Indeed, it made a resounding comeback with a wrestler known as Ed “Strangler” Lewis at the helm. In the 1920s and 1930s, the Strangler used his headlock hold (squeezing an opponent’s head in the bend of your elbow and thus slowing down the flow of oxygen to the body) to win hundreds of matches. The large man could not be beaten, and the fans loved to watch his efforts. In more than 6,000 matches, he only lost 33, and those 33 represent the introduction of the “job” aspect to professional wrestling. To spice up the matches and make them more unpredictable, the Strangler agreed to lose from time to time, thus performing a “job” for the promoter. Riding this wave of popularity, the promoters looked toward the next era for a superstar such as the Strangler. Their focus was on collegiate athletics. Who better to perform in the ring than football players for whom thousands had already cheered? In addition, the matches now had time limits, which increased entertainment for the crowds. Even though the country was going through the Great Depression, some matches earned in excess of $95,000.

But the newfound success of professional wrestling could not last and, as World War II came and went so, once again, did the sport. Then in the late 1940s, when television started to gain appeal in America and more homes tuned in, wrestling promoters realized that they could reach a far larger crowd. Capitalizing on this new medium, a wrestler known as “Gorgeous” George captured the spotlight. With his long, bleached-blonde hair, chiseled body, and a scantily clad woman “manager” (also called a “valet”) who accompanied him into the ring, Gorgeous George made the most of the stage and entertainment side of wrestling. His manager sprinkled rose petals as George walked into the ring. The wrestler piqued the audience’s interest by insulting various women in the crowd and constantly grooming himself. Then, antics aside, he wrestled with heart and passion and, when victorious, took advantage of the opportunity to stand center stage with microphone in hand and cameras rolling. Gorgeous George set off a whole new era for the sport.

As the sport grew during this era, with its fan base spreading and more wrestlers gaining popularity, various wrestling personalities appeared. Instead of two ordinary men (or women) being pitted against each other, wrestlers began to develop characters and personas using cultural stereotypes to determine their character. In the 1950s, such villains emerged as Hans Schmidt, a Nazi from Munich (actually a French-Canadian), Mr. Moto (who was Japanese), and Nicolai Volkoff (who was Russian), all within 10 years of World War II. At that time, even with the fanfare, the promoters of wrestling were scattered throughout the country. There were dozens of wrestling promotions, each competing for the limited television time with their superstar athletes.

There were well more than 15 main promotions (companies that directed the marketing of wrestling events). Fans became confused about who was the best wrestler, and what was the best promotion (promoters were given a territory where other promoters did not go based on contracts, tradition, and signed agreements), so some companies started buying out promotions

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in other regions. In the early 1960s, Vince McMahon, Sr., formed the World Wide Wrestling Federation (WWWF) with the hope of centralizing the sport once again.

As the sport began another climb to the top, this time there was no limit as to where it could go. Leviathans began entering the ring such as Andre “the Giant,” who stood 7’4” and weighed 525 pounds, and others who were not only great champions but spectacles as well. Using those stars and the new reach through purchased territories, the WWWF began sending videotaped matches across the country, so all could view the shows even if they were not televised live. With the reach also came increased advertising dollars and, consequently, the ability to pay for more wrestlers. As the money poured in, it could go out more freely, and those events led to increased draw from fans around the country and world.

The true force behind the WWWF machine was Vincent K. McMahon, Jr., son of Vince McMahon, Sr. McMahon grew up in a home where he was beaten by his stepfather and had problems in school. After that rough beginning, he began working for his father’s WWWF (which controlled the Northeast territory) and found he could leverage his violent past to create the stories needed to draw in the fans. With meager beginnings, his growth through acquisition fueled his success until he made the greatest acquisition in wrestling history—Hulk Hogan.2 The Birth of “Hulkamania”

In 1982, McMahon purchased the WWWF from his father and renamed it the World Wrestling Federation (WWF). He quickly took the WWF from a regional promotion to a national one, promoting shows in other territories and making many enemies along the way. His first bold move was to find a star around which to build his national promotion, and he found that star in Hulk Hogan.

In the fall of 1983, McMahon hired Hogan away from the Minneapolis-based AWA, a regional promotion owned by former wrestler Verne Gagne. Hogan had been in wrestling since 1979, co-starred in Rocky III, and was the top draw in the AWA. Born Terry Gene Bolea in 1953 in Atlanta, Georgia, Hogan stood 6’7”, weighed 302 pounds, had a deep tan, long blonde hair, and, most important, the charisma that allowed him to become the first wrestler to truly transcend wrestling. Together, he and McMahon turned the WWF from a regional sideshow into a national main event. Along the way, McMahon revolutionized the sport by vastly improving the production quality. He introduced the use of videotape, blanketing local independent television stations with his wrestlers, then took wrestling to closed-circuit television, and,

2 “35,000,000 Wrestling Fans Can’t Be Wrong,” Entertainment Weekly (April 16, 1999): 14–21; Paul Jaye,

“Hitman Hart—Wrestling with Shadows,” A High Road Production (VHS 1998); Captain Lou Albano, Randolph Bert Sugar, Roger Woodson, The Complete Idiot’s Guide to Pro Wrestling (New York: Simon & Shuster Macmillan Company, 1999); Hofstede; “The Unreal Story of Pro Wrestling,” produced by Actuality Productions, Inc. for an A&E Television Network Production (VHS 1998); “Ready to Rumble,” U.S. News and World Report (May 17, 1999): 52–58.

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eventually, to pay-per-view (PPV) television. Soon, Hulk Hogan and his red and yellow colors were everywhere; “Hulkamania” was running wild.

The WWF also included stars like Andre the Giant and, perhaps the most recognizable professional wrestler in the world, Randy “Macho Man” Savage, as well as the Junkyard Dog, “Mr. USA” Tony Atlas, Big John Studd, King Kong Bundy, and of course, Jesse “the Body” Ventura (later the governor of Minnesota). By the mid-1980s, McMahon and Hogan had winnowed the field of big-time wrestling promotions to the WWF and a second-tier promotion called the National Wrestling Alliance (NWA), which was based in Charlotte, N.C. and home to “the Nature Boy” Ric Flair and the Road Warriors.

Professional wrestling and the WWF, in particular, used Cold War themes to provide much of the great rivalries that dominated the decade. With Hulk Hogan as the American hero and wrestlers supposedly from the Soviet Union as the villains, wrestling fed off the country’s nationalism and drew upon ethnic hostilities to fuel the frenzy of its crowds and give a larger meaning to the confrontations it staged.3 During the years of tension between the United States and Iran, the WWF hit pay dirt with a villain known as the Iron Sheik. Not to be left behind by the march of history, during the Gulf War the Iron Sheik reinvented himself as Colonel Mustafa, and suddenly Americans had an Iraqi wrestler to hate.4

Professional wrestling’s success was well chronicled in the mainstream media. In April 1985, Hulk Hogan became the first wrestler ever to grace the cover of Sports Illustrated, and he also appeared on several variety shows and late-night talk shows. Although predominantly a syndicated and cable TV franchise, the WWF marked wrestling’s return to prime time network television for the first time in 30 years with a one-hour program on NBC called Saturday Night’s Main Event, which aired one weekend a month in place of Saturday Night Live.

Up until the mid-1980s, promoters had presented professional wrestling as a real sport, and therefore, local state athletic commissions, which wanted to tax the PPV broadcasts, governed it. McMahon responded by admitting publicly that wrestling matches were scripted and the outcomes fixed, thus exempting the WWF’s events from taxes and certain drug regulations. A funny thing happened: Wrestling began to seem less alien to mainstream entertainment and advertisers, crossing into music videos, albums, Saturday morning cartoons, and movies. It grew more popular than ever. The WWF’s popularity in the 1980s peaked in 1987, when on March 29 more than 93,000 fans packed the Silverdome in Pontiac, Michigan, for WrestleMania III, in which Hulk Hogan battled the legendary Andre the Giant. That match broke the world record for the largest crowd ever to attend an indoor sporting event.5 As wrestling roared into the 1990s, Hogan was beginning to burn out from the relentless schedule, so McMahon began looking for his new “Hulk Hogan.” He could not find one, but Hogan retired from professional wrestling on May 5, 1992, after WrestleMania VIII in Las Vegas, Nevada.

3 Paul A. Cantor, “Pro Wrestling and the End of History,” Weekly Standard (October 4, 1999): 17. 4 Cantor, 18. 5 World Wrestling Federation Entertainment, Inc. SEC Form S-1. Filed August 3, 1999.

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The Professional Wrestling Industry

The WWF (technically, the WWFE, World Wrestling Federation Entertainment, Inc.) was headquartered in Stamford, Connecticut, and McMahon and his family owned 83%. Vince, 54, was chairman; his wife Linda, 51, president and CEO; his son Shane, 30, president of new media; and his daughter, Stephanie, 23, an advertising representative. All were involved in wrestling storylines and action. The WWF produced 12 PPV events a year and nine hours of original programming a week. A sample of its programs included: WWF Raw is War (Raw), Monday nights at 9 pm on the USA Network (cable), WWF Smackdown! (Smackdown!), Thursday nights at 8 pm on UPN, and Sunday Night Heat, Sunday nights at 7 pm on USA.

Based in Atlanta, Georgia, World Championship Wrestling (WCW) was a subsidiary of Turner Entertainment. WCW produced 12 PPV events a year, and seven hours of original programming a week. A sample of its programs included: WCW Monday Nitro (Nitro), Monday nights at 8 pm on TNT; Thunder, Wednesday nights at 9 pm on TBS; and WCW Saturday Night, Saturday nights at 6 pm on TBS. Turner owned the TNT and TBS cable networks.

Professional wrestlers typically signed two- to three-year contracts. Although a few surpassed the $1 million-a-year mark, most under contract to the WWF and WCW received a base salary of $80,000 to $200,000.6 Those wrestlers were paid bonuses on a weekly basis, but ultimately, a wrestler’s total compensation was determined by his or her position in the company, which was in turn determined by the wrestler’s popularity.7 Because wrestlers were independent contractors, they were responsible for their own travel expenses and medical insurance. Top wrestlers for the WWF and WCW could spend as many as 300 nights a year on the road. Inevitably, the matches took a physical toll. Despite being scripted, the matches and outcomes involved large, powerful men and women colliding with each other. Wrestlers suffered broken bones, burns, concussions, and separated shoulders, and many routinely performed with broken ribs, stitched wounds, and herniated discs. Taking time off to allow injuries to heal completely was a luxury they could not afford, especially beginning wrestlers, because the WWF and WCW would quickly drop anyone unable to perform.

Each promotion had a team of writers, called “bookers” (see Exhibit 1 for a list of industry terms), who were responsible for creating the storylines and scripting the finishes to the matches. In most instances, the bookers also wrote the interviews and had a hand in creating each wrestler’s character, ring attire, and entrance music. But, most important, the WWF and WCW owned the rights to most of the characters, and therefore, controlled the royalties from the sale of branded merchandise such as T-shirts, dolls, posters, and videocassettes.

Although the WWF and WCW received most of the professional wrestling attention, a third promotion, Extreme Championship Wrestling (ECW), had become relatively popular as well. ECW started in Philadelphia, Pennsylvania, in the mid-1990s and developed a cult

6 Peter Kafka, “Live Action Heroes” Forbes (March 22, 1999): 101. 7 Kafka, 102.

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following for its intense and more violent content. ECW primarily played in small arenas or theaters, produced four PPVs a year, and launched its first nationally televised program on the CBS-owned Nashville Network (TNN) in August 1999. In addition, there were various small, independent promotions based regionally throughout the United States. Wrestling in the 1990s

Things started to sour for the WWF in the early 1990s. First, the end of the Cold War meant the end of an era where physical conflict in the ring was based on global political tension, robbing professional wrestling of some of its greatest rivalries. Second, in 1992, the federal government indicted Vince McMahon on charges of distributing illegal anabolic steroids to his wrestlers. Steroids were an illegal substance that some athletes used to enhance their strength, stamina, and physique. Because physical appearance was such an important ingredient for a wrestler’s fan appeal and success, and regulations regarding steroids that existed in other professional sports were lacking in wrestling, many wrestlers were tempted to use the drugs. At trial, the government’s star witness was none other than Hulk Hogan. During his testimony, Hogan talked of widespread steroid abuse among wrestlers, including himself, although he stopped short of pointing to McMahon as the source of the steroids.8 The trial began on July 1, 1994, and after 18 days, McMahon was acquitted of all charges, but an industry with already low credibility had taken a beating.

Media mogul Ted Turner purchased the NWA in summer 1988 and rechristened it World Championship Wrestling (WCW). While McMahon’s attention was focused outside of the ring, WCW launched Nitro on Monday nights opposite the WWF’s Raw. That marked the beginning of the Monday night ratings wars and the intense rivalry between the WWF and WCW for the top spot in the industry. In 1994, Turner hired an aggressive new executive vice president named Eric Bischoff. Turner and Bischoff, however, still needed a big fish if they wanted to topple the WWF, so in the summer of 1994, they offered Hulk Hogan a lucrative contract to end his retirement and join WCW. Several top WWF stars followed Hogan to WCW, which gained ground by experimenting with even higher production values and more sophisticated story lines and angles. For two years, Hogan was WCW’s top draw, but eventually his “character” would run its course. So Hogan then met with Eric Bischoff and the two started to plan what, to wrestling fans, was almost unthinkable.

At the “Bash at the Beach” PPV in the summer of 1996, Hogan abandoned his yellow and gold tights for the black and white of the New World Order (nWo), a rival faction of heels within WCW. Fans were stunned. Hulk Hogan was now a bad guy. He had turned on the fans, but the move re-energized professional wrestling. The nWo adopted an outlaw pose within WCW, refused to conform to league rules, and challenged the duly constituted wrestling authorities.9 Fans tuned in every week to see what atrocities the Hogan-led nWo would do next.

8 “Hulk Hogan, on Witness Stand, Tells of Steroid Use in Wrestling,” New York Times, 15 July 1994. 9 Cantor, 19.

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Starting in July 1996, the WCW began 83 consecutive weeks on top of the Monday night ratings war.10

Even though WCW was winning the ratings battle, McMahon was not ready to fold. The WWF came storming back. McMahon hired writers from Late Night with Conan O’Brien and MTV, and gradually they began to push the envelope of civility a bit further on each week’s edition of Raw. The WWF’s new mix no longer consisted only of the usual muscle-bound male contestants. Women now wrestled in the WWF, and there were plenty of flashy pyrotechnics, nonwrestling action, and adult themes.

Indeed, even before the WCW began its ride to the top, McMahon made a crucial decision when he hired former WCW and ECW wrestler Steve Austin, calling him “the Ringmaster.” That gimmick failed, but Austin thought the WWF could benefit from a guy the fans would love to hate. Seizing on an expression his wife had used to describe her tea while talking to him on the phone, McMahon rechristened the wrestler as “Stone Cold” Steve Austin, and the WWF finally had its new “Hulk Hogan.” Deciding to rebuild the WWF around Austin, McMahon soon wrote his own character into the story lines by pitting himself, as the powerful owner of the WWF, against Austin, who symbolized the poor, abused, blue-collar worker. That angle tapped into the resentment that McMahon thought the average working man felt for his boss.11 Austin was perfect for the role—a 6’2,” 250-pound, bald, goatee-wearin’, beer-drinkin’, hell-raisin’ Texan, who came into the ring to the sound of a window breaking, wearing all black. “Stone Cold” developed his trademark response to McMahon’s strong-arm tactics: the all- American obscene gesture of a raised middle finger.

The McMahon-Austin feud was successful, and yet it was not the only thing the WWF had going for it. A valet (a female wrestling manager) named Sable, known for her revealing outfits and participation in swimsuit competitions and evening gown matches, became one of wrestling’s biggest stars.12 McMahon also copied one of WCW’s most successful tactics (the nWo) and formed a rival faction called Degeneration X (“DX”), whose trademarks included adult language and sexual hand gestures. The WWF had officially copped an attitude.

WCW responded to the success of “Stone Cold” with its own bald, goateed enforcer— Bill Goldberg. A former defensive lineman for the Atlanta Falcons, the 291-pound Goldberg was promoted as being invincible. In July 1998, he became WCW’s top dog by defeating the franchise, Hulk Hogan, in front of 41,000 at the Georgia Dome in a match that earned a 6.9 rating, the highest quarter-hour rating in the history of professional wrestling on cable.12 The competition between the WWF and the WCW intensified, and the rivalry lifted the entire industry to a new level of popularity. Each promotion put on its best show every week, and the fans were tuning in. The WWF and WCW’s Monday night programs took turns occupying the

10 John Leland, “Why America’s Hooked on Wrestling,” Newsweek (February 7, 2000): 51. 11 Cantor, 21. 12 Mark Shone, “The Steel-Cage, No-Holds-Barred, Cable-Ratings Death Match,” SPIN Magazine (December

7, 1998): 45.

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top spot in cable’s weekly ratings. By the end of 1998, Nitro and Raw were two of the three highest rated shows on cable, and individual hours of WWF and WCW programming accounted for seven of the ten highest rated cable shows most weeks (the others were Rugrats on Nickelodeon and South Park on Comedy Central). Professional wrestling grew to a $400 million business that was outdrawing ABC’s Monday Night Football on television and selling-out domed stadiums for live PPV events.13

Through creative marketing, professional wrestling was finding its way into the homes of millions of Americans. It seemed you could not open a TV Guide or Newsweek, or watch an A&E special or “20/20” show without seeing or hearing about what was going on in the world of wrestling. Customer awareness, products fit for sponsors, and creative story lines to tie the marketing efforts together were the keys to success. In addition, wrestlers increased their exposure by appearing on late-night talk shows, giving magazine interviews, and filming commercials. Each appearance reached a potentially different audience and, as a result, wrestling was attracting a diverse audience to its cable TV shows; for example, one-third of its television audience was women.

The adult-oriented content was also responsible for wrestling’s surge in popularity, especially among its target audience of 18- to 34-year-old men and 12- to 17-year-old teenagers. But there were limits to how edgy Bischoff would get because he wanted to expand WCW’s audience to be more acceptable to advertisers and also stay within the confines of the overall programming image of Turner’s television stations. McMahon, on the other hand, was a different story. As a compulsive opportunist, he saw the “TV 14” rating that graced Raw and not Nitro as more of a promise than a warning. By the end of 1998, the differences between the WWF and WCW were very distinct. The WWF was winning viewers and pleasing advertisers with its fresh, aggressive content, while the WCW was adhering to more traditional content and attempting to maintain viewers by recycling former WWF stars such as the Ultimate Warrior.

In 1999, the WWF, with numerous valets, adult language and themes, simulated violence, and intricate angles, was firmly entrenched as the number one promotion in the industry. Raw was the number one rated regularly scheduled cable television program for 19 consecutive weeks through June 30, 1999, achieving an average weekly rating of 6.2, and it earned 26 of the top 30 hourly rankings on the Nielsen list of most watched shows on cable.14 That popularity, however, did not end with Monday nights. WWF Smackdown!, which debuted on UPN in August 1999, quickly built an audience of approximately seven million viewers and even beat the NCAA Men’s Basketball tournament on CBS.15 Attendance at live events topped 2.3 million; over five million households purchased PPV events; estimated retail revenues from sales of branded

14 For the USA Network, each rating point was equivalent to 750,000 households. According to Nielsen rating

service, there were 1.4 viewers per household. Based on this data, Raw averaged 6.5 million viewers. World Wrestling Federation Entertainment, Inc. SEC Form S-1. Filed August 3, 1999.

15 According to Nielsen rating service, Smackdown! earned a 6.6 rating, and CBS coverage of that night’s NCAA basketball earned a 6.1 rating.

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merchandise were roughly $400 million; eight of the WWF’s home videos ranked among the ten best selling videos in Billboard magazine’s “Sports” category as of June 30, 1999; a music compilation, “WWF—The Music, Volume III,” achieved platinum status and peaked at number 10 on the Billboard 200 album chart; the WWF Web site (wwf.com) attracted over 1.5 million visitors, making it the fourth ranked sports-only Web site behind ESPN, SportsLineUSA, and CNNSI; and two wrestlers, “Mankind” and “The Rock,” wrote autobiographies that debuted in the No. 2 and No. 3 spots on the New York Times best seller list in November 1999 and January 2000, respectively.16 In October 1999, the WWF capitalized on its popularity by raising more than $170 million in an IPO that gave the McMahon family 83% of a company valued at more than $1 billion.17 (See Exhibit 2 for 1997, 1998, and 1999 WWF financials).

The phenomenon of the WWF’s popularity was similar to that experienced by nationally syndicated shock jock Howard Stern.18 The more controversy Stern’s show garnered, the higher his ratings. Ironically, the people who listened to his show the longest tended to be the ones that were most vocal against its content. Similarly, wrestling viewers often criticized the content, yet they watched it every week. McMahon and Bischoff both claimed that wrestling could reach every demographic and every segment. That appeal and awareness led to several wrestlers appearing on other TV shows to help boost those ratings. For example, Chyna (a female wrestler) appeared on NBC’s Third Rock from the Sun; “Stone Cold” Steve Austin appeared on several episodes of CBS’ Nash Bridges, and “The Rock” hosted NBC’s Saturday Night Live, which drew more than 20 million viewers, the show’s highest rating of the season.19

All that popularity, however, did not come without significant criticism and controversy. Although the WWF was successful, it became so, in a sense, at its own peril. The WWF’s adult- oriented themes and content brought loud cries from television critics and especially parental watch groups. Interviews with wrestlers were full of adult language and obscene gestures. Sexual fetishes, racial stereotyping, cult worship, cross-dressing, crucifixions, pornography, and prostitution were all themes for characters and angles. Fitness models were hired to be valets and would wear minimal clothing to the ring. In some episodes of Raw, they wrestled in chocolate pudding as the audience chanted for them to strip naked. Moreover, some valets were even involved physically in high-risk spots with wrestlers. The use of chairs, tables, and blading (cutting oneself with a razor blade to produce blood) became more common, as well. Legendary 1970s wrestler Bruno Samartino said after watching an episode of Raw with his son, “I’m ashamed to see that the business I was associated with has come down to this.”20

USA Today’s Ted Rueter included professional wrestling among the causes of America’s culture of violence, along with guns, R-rated movies, violent video games, rock musician

16 Leland, 49. 17 Leland, 48. 18 Howard Stern was a “shock jock” whose popular morning radio show was broadcast nationally. Stern’s

program, with its racy and volatile content, was frequently the subject of controversy. 19 Friday Morning Quarterback (March 28, 2000). 20 Schone, 43.

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Marilyn Manson concerts, and family breakdown.21 According to Gregory Fagan, assistant editor of TV Guide, “If you believe that violence and sex and that kind of imagery is bad for kids, then this is the lightning rod… this is the place where it is being pushed the furthest on television.”22 Critics claimed that the sexual content and glorification of violence were not appropriate themes for much of wrestling’s younger audience (kids ages six to 11 make up 13% of the audience) and that wrestling’s content was an alluring but destructive influence on such adolescents.23

In addition, wrestling was blamed for several tragedies, as many young fans attempted to duplicate some of the wrestlers’ moves. For example, a seven-year-old killed his three-year-old brother with a “clothesline” maneuver, and a 12-year-old boy body-slammed and killed his 19- month-old cousin when the baby would not stop crying. Several wrestlers were subpoenaed but failed to appear to testify at a trial in South Florida for a 12-year-old boy eventually convicted of murdering his six-year-old playmate.

Several parental watch groups began campaigns aimed at getting the networks to either remove wrestling programs from their schedules or air the shows later in the night when fewer children were watching television. UPN came under pressure from many of its sponsors like Mars and Coca-Cola, who threatened to pull their ads from Smackdown! if McMahon did not agree to tone down the content and allow the show to receive a “TV-PG” rating.24 That was precisely the type of controversy Bischoff was trying to avoid. When the violence and sexual innuendo on the show didn’t lessen, many companies did bow to the pressure and pulled their ads.

The chief parental watch group critical of the WWF was the Parents Television Council (PTC), a California-based organization that in the summer of 1999 launched a major campaign against WWF Smackdown! On its Website (www.parentstv.org), the PTC urged people to write complaint letters to the CEOs of companies that advertised on the show. The campaign was successful in getting a number of companies—Allstate, AT&T, and Burger King—among others, to withdraw their ads during Smackdown! The PTC also published a weekly summary of the “inappropriate” violence, sex, and foul language on each week’s episode and provided information (CEOs’ addresses and phone numbers) on companies that continued to advertise. The WWF’s response to the PTC was not friendly. An October 1999 letter to PTC Chairman Brent Bozell III from Vince McMahon began with, “Thanks for getting on our ass; now I’m going to get on yours.”

Criticism of wrestling’s content also came from within the industry. “Professional wrestling has become a showy display of graphic violence, sexual themes, and dangerous stunts,” said Martha Hart, widow of wrestler Owen Hart, in a 46-count lawsuit filed against the

21 Ted Rueter, “Kids Grapple with Wrestling Violence,” USA Today, 30 March 2000, Sec. 1-D. 22 A& E Biography special on Mick Foley. 23 Rueter. 24 “Vincent McMahon: “Kinder, Gentler Sex and Violence,” Business Week (December 13, 1999): 52.

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WWF.25 Owen Hart fell 90 feet to his death from a rafter in an arena in May 1999 as he was being lowered into the ring as part of a stunt at a PPV. Sable eventually quit the WWF and also filed a lawsuit against the company, alleging that the business “has become so obscene and so vulgar” that she no longer wanted to be a part of it. Sable claimed that she was “asked almost weekly to go on television and have her clothes ripped off and appear topless.”26

McMahon had been the first to remind critics that wrestling was not real and that the true skill was in performing seemingly violent acts without hurting anybody. The WWF, he added, was simply giving the audience what they wanted, and McMahon was quick to reference the First Amendment in his defense. Even so, critics felt that wrestling promoters should bear the responsibility for the actions of its wrestlers and the reactions of it viewers. As an entertainment medium, however, McMahon believed that wrestling was akin to a movie, complete with actors and a script. Linda McMahon concurred, comparing the WWF to action movies combined with soap operas.27

A dangerous cycle began as the WWF continued to push the envelope to get ratings, and no one was affected more than the wrestlers themselves. The more violent content required wrestlers to perform dangerous stunts, putting their safety at risk. Mick Foley (a.k.a. “Mankind” and “Cactus Jack”) provided a clear example of that sacrifice with his efforts to increase his popularity (and his income) and become the top star in the WWF. Mick had wrestled inside a ring where barbed wire replaced the ropes and on a mat covered with thumbtacks, and had been slammed through the top of a 30-foot-high steel cage. The result: eight concussions; a broken jaw; a bruised kidney; a fractured shoulder; two-thirds of an ear ripped off; four teeth knocked out; a broken cheekbone; second-degree burns; and more than 375 stitches.28 Although those stunts took their toll on Foley’s body, McMahon rewarded Foley’s sacrifices by making him the WWF champion and putting him in the main event of the WrestleMania PPV on April 2, 2000, thus fulfilling the wrestler’s lifelong dream.

Wanting to avoid the public criticism and remain true to the family nature of Turner’s overall programming, the WCW did not follow the same path as the WWF. WCW had dancers, female valets, and more violence than a football game, but it avoided the content that would have forced Nitro to drop its “TV-PG” rating for a “TV-14” rating. Bischoff stated that he did not want WCW to be “thrown out with the bath water our competition [the WWF] has created,” and that his goal was to “be creative without being offensive… shock television is not good television.”29 By early 2000, however, WCW had fallen further behind the WWF in the weekly ratings. For example, an episode of Raw in late February earned a 6.5 rating, compared with a

25 Ann Oldenburg, “Going to the Mat Over Violence and Sleaze,” USA Today, 22 June 1999, Sec. 1-B. 26 Oldenburg. 27 Diane Brady, “The WWF: Blood, Sweat, and a Lady Named Linda,” Business Week (January 24, 2000). 28 Mick Foley, Mankind: Have a Nice Day! A Tale of Blood and Sweatsocks (New York: Reagan Books, 1999). 29 Oldenburg, 11-B.

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2.2 rating for Nitro. Indeed, Nitro (which aired one hour earlier than Raw) did not even win its timeslot—a syndicated rerun of Walker, Texas Ranger on USA earned a 3.0 rating.30

Poor television ratings were just the beginning. WCW’s business suffered in several other

areas as well. First, attendance at events declined drastically. For example, whereas the WWF was selling out events throughout the country—some in less than five minutes, most WCW events were attracting fewer than 4,000 paid fans. Even the March PPV in Miami drew only 2,500 paid fans. Second, PPV buys declined. The WWF’s March PPV earned a 1.28 buy rate, while WCW’s March PPV earned only a 0.13, the lowest in the history of the company.31 Third, and perhaps most important, while the fan base continued to support the WWF, the WCW had difficulty attracting and retaining wrestlers, as many wrestlers left the WCW for the WWF.

In addition to these problems, the WCW also faced a leadership crisis. Bischoff hired writer Vince Russo away from the WWF to be WCW’s lead booker and help the promotion find its niche. Bischoff hoped that Russo, who was the creative mind behind many of the WWF’s most popular (and controversial) angles, would be able to come up with the story lines and direction to make WCW competitive again. Unfortunately, Turner Entertainment executives, who claimed that his proposed programming would not adhere to Time Warner’s standards and practices, often rejected Russo’s plans. WCW’s slide continued, and Bischoff and Russo were eventually fired. Various wrestlers were then put in charge of booking, but Turner execs held firm and refused to allow WCW’s content to change, and, in doing so, forced the company into its second place status. This would be acceptable if WCW could still meet its revenue and income requirements, but the bland story lines, aging talent, and lack of creative direction were not filling seats or selling PPV subscriptions. The result was that WCW fell not only to a distant second behind the WWF, but also lost much of its advantage over the perennial third place promotion, ECW. In fact, ECW’s March PPV drew more paying fans and earned a higher buy rate than WCW’s March PPV.32

McMahon had a clear vision of what he wanted from the WWF. He knew what it took to get to the top of the lucrative professional wrestling industry and was willing to employ the tactics necessary to get there. The WCW, on the other hand, was facing turbulent times and had been so focused on regaining the number one position from the WWF that it lost sight of the fact that the number three promotion, ECW, had closed the gap significantly.

Bischoff remembered how frustrated he felt the day he was fired because he did not think executives at Turner gave him the time or the creative freedom to develop WCW in a manner that would be competitive with the WWF. During his absence, however, nobody at WCW had an answer for how to respond to the WWF. Now, Bischoff would get the second chance he wanted.

30 http://www.prowrestling.com Web site, March 2, 2000. 31 A buy rate represented the percentage of the nation’s approximately 37.5 million homes that are able to

receive a PPV broadcast; http://www.prowrestling.com Web site (accessed March 20, 2000). 32 http://www.prowrestling.com website (accessed March 18, 2000).

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In the eyes of many industry observers, Brad Siegel’s job was in jeopardy, and he had no choice but to rehire Bischoff. That was of little comfort to Bischoff on that humid Friday afternoon. He needed to make a statement when Nitro returned to the air because it might be WCW’s last chance with the Monday night audience. Should WCW succumb to the demands of the wrestling audience and match the product and content of the WWF to win back the fans? If so, how would Turner executives react to such a plan? If Bischoff avoided the controversial content, what would be WCW’s competitive advantage? As a wrestler himself, Bischoff felt the answer rested somewhere within the 12-by-12-foot ring in which he performed each week. But he now needed to think strategically beyond his athletic focus. Bischoff thought about all the issues, the upcoming Nitro, and the ratings. He knew he needed a plan.

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Exhibit 1

Wrestling Terminology Face (baby face) Good guy Heel Bad guy Angle/Story line The soap opera-like stories involving the wrestlers and their

characters Feud When wrestlers fight each other frequently Gimmick A wrestler’s character, persona, style, unique traits, etc. Blade To cut yourself during a match with a hidden razor blade to

produce blood Pop Applause and positive fan reaction towards a face Heat Anger from the fans directed toward a heel Over Popular with the fans—a face who gets a loud pop, or a heel who

generates a lot of heat Spot A particular stunt or complex acrobatic maneuver Hardcore A general term referring to a more extreme and violent style of

wrestling Do the job Agree to lose to your opponent Valet A female manager Push When a wrestler gets more air time and starts to win big matches Shoot When a wrestler gives an unscripted interview Turn To change your character from a face to a heel or vice versa

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Exhibit 2

in millions 1997 1998 1999 CAGR

Revenues 81,863 126,231 251,474 75%

COGS (60,958) (87,969) (146,618)

Gross Margin 20,905 38,262 104,856 124%

SG&A (25,862) (26,117) (45,559)

D&A (1,729) (1,676) (1,946)

Other (5) (1,540) 622

Income before Taxes (6,691) 8,929 57,973

Provision 186 (463) (1,943)

Net Income (6,505) 8,466 56,030

FY Ending April 30,