World Wrestling Entertainment's (NYSE: WWE) stock moved lower following revelations that founder and CEO Vince McMahon had given payments to a female employee with whom he was engaged in an affair and also gave her a promotion. More concerning were reports that this was a pattern of behavior and potential use of corporate funds.
Following the news, McMahon temporarily stepped aside as CEO, and he was replaced by his daughter - Stephanie McMahon-Helmsley. This is expected to continue while the Board of Directors conducts an investigation. According to reports, the 'hush payments' were made using personal payments rather than company funds.
The Board also uncovered older non-disclosure agreements that were brought against McMahon and other WWE employees by female employees. If this proves to be a pattern of behavior, then it could bring more serious consequences for McMahon, although he and his family remain controlling shareholders.
Despite stepping down as CEO, McMahon remained as executive producer and explicitly signaled that he remains a major presence with his appearances on TV to address the allegations on WWE's primetime programming. His daughter taking his place is also interpreted by many that nothing will really change following the investigation's conclusion.
These types of headlines also bring back rumors that the entire WWE may be sold to another entertainment company or streamer that is hungry for IP and content. For instance, Apple (Nasdaq: AAPL) bought the rights to MLS for 10 years for $2.4 billion whereas the entire WWE is worth less than $5 billion. The WWE also brings with it a large, global fanbase that is extremely visible in terms of its online and cultural presence.
The rising value of such content may be one reason that WWE has outperformed YTD with a 23% gain even with its 14% decline following these revelations. The stock is also quite cheap with a forward P/E of 23 and 18% profit margins. The latter is another reason to like the stock as margins have trended from the mid-single-digits to the high-teens over the last few years.