Full Details On Lawsuit Against WWE Seeking Answers On XFL Relationship

On 12/26, a lawsuit was filed by the Oklahoma Firefighters Pension and Retirement System against World Wrestling Entertainment Inc. The suit seeks answers on WWE’s relationship with the revived XFL.

Bloomberg Law broke the news stating the stockholder has “credible basis to believe” that Vince McMahon and other senior WWE executives have breached their duties to investors by diverting resources for the XFL.

Wrestlenomics Radio has obtained a full copy of the lawsuit, which can be seen at the end of this article.

Oklahoma Firefighters Pension and Retirement System owns 107 shares in WWE stock. As of press time the stock is valued at $6940.02. The stockholder has held the stock since at least February 2018.

Below are key excerpts from the lawsuit.

BACKGROUND

Plaintiff has a credible basis to believe that McMahon and potentially other senior officers of WWE may have breached their fiduciary duties by usurping WWE’s corporate opportunities and diverting resources from WWE toMcMahon’s newest business endeavor, the XFL. Plaintiff also has a reasonable basis to believe directors of WWE may have breached their duties by failing to conduct oversight to ensure that those corporate opportunities were not usurped, that those resources were not diverted, and that McMahon did not engage in transactions that constitute a conflict of interest with WWE.

In 2000, WWE, led by McMahon, and NBC entered into a joint venture to establish an alternative to the National Football League, which it called “XFL.” At the time, XFL was a partially owned subsidiary of WWE. The XFL debuted in 2001, but quickly shut down after just one season. Commentators observed that one of the main reasons for the league’s failure was that its creation had been rushed and the league had been given insufficient time to develop.

In February 2017, ESPN aired an episode of its “30 for 30” sports history documentary series, focusing on the failed efforts to construct the XFL

In the early 2000s, Charlie Ebersol (“C. Ebersol”)—son of Duncan “Dick” Ebersol (“D. Ebersol”), who had led NBC’s efforts to partner with the WWE with respect to the XFL in the early 2000s—helped research and produce the documentary. As he was doing so, he and D. Ebersol became convinced that a secondary football league could be viable in the United States. With his father, he became interested in reviving the XFL. They worked with a partner, Robert Vanech (“Vanech”),who would later come to sue C. Ebersol for violating their partnership agreement.

The Ebersols, along with Vanech, held extensive discussions and developed business plans for the development of a spring football league. As part of that plan, C. Ebersol and Vanech formed the American Association of Football(“AAF”), and developed a business plan centered around acquiring the XFL-related assets from WWE and relaunching the league, which they considered naming “XFL 2.0.” They created a presentation that was developed with professional assistance over the course of several months. The presentation, titled “XFL 2.0 Project Phoenix,” is a specific business plan centered on a reboot of the XFL.

According to the Presentation, Vanech and the Ebersols had planned to make an offer for the XFL assets as early as April 2017.

Before meeting with McMahon, though, they decided to reach out to a senior executive of WWE who had been involved in the original iteration of the XFL.

On May 18, 2017, McMahon met with the Ebersols in New York. No deal was reached.

Four months after meeting with the Ebersols, on September 6, 2017,McMahon established VKM Ventures LLC, a Delaware limited liability company.On September 21, 2017, VKM Ventures changed its name to Alpha Entertainment,LLC (“Alpha”).

In December 2017, rumors began to circulate to McMahon was considering reviving XFL. In response, a WWE spokesperson acknowledged onDecember 16, 2017, that McMahon had “established and is personally funding a separate entity from WWE, Alpha Entertainment, to explore investment opportunities across the sports and entertainment landscape, including professional football.

The following month, on January 25, 2018, McMahon announced that he would bring back the XFL beginning in 2020.

On December 21, 2017, McMahon sold 3.34 million shares of WWE, worth approximately $100 million. A WWE filing noted that the sale was “primarily to fund a separate entity from the Company, Alpha Entertainment LLC.”

At the time, McMahon assured investors that he had “no current plan to sell additional shares of the Company’s stock.” 15  On November 30, 2018, however, he sold 306,000 more shares for approximately $23 million. Just four months later, on March 27, 2019, McMahon sold more than 3.2 million WWE shares to raise about $272 million for Alpha and his XFL venture. He again represented that he had no current plans to sell more WWE stock. Even after his sales, McMahon retained 36.8% of the Company’s shares and, more importantly, 80.1% of its total voting power.

The transfer of the rights to use XFL-related assets to McMahon’s control appears to have been riddled with conflicts.

Jerry McDevitt, Esq., a partner with K&L Gates, responded on behalf of WWE to Stockholder’s original demand letter of September 3, 2019. Mr McDevitt has represented the interests of WWE since at least 1988.Yet, K&L Gates represents Alpha with respect to Alpha’s pursuit of the XFL trademarks, one of the very issues raised in this demand.

All of the applications filed on behalf of VKM Ventures and Alpha were filed by Mr. Verdini. At the same time, Mr.Verdini’s biography prominently references his representation of WWE in trademark cases. In fact, with respect to the trademark application for Serial No.85720169, which is for the “XFL” mark, Mr. Verdini replaced in-house counsel as WWE’s  counsel before the U.S. Patent and Trademark Office, filed documents on behalf of WWE, and received the Certificate of Registration on behalf of WWE in February 2018. He did not withdraw that representation and so was representing both WWE and Alpha at the time the rights to that mark allegedly were assigned by WWE to Alpha. Messrs. McDevitt and Verdini, both work in the Pittsburgh office of K&L Gates, 29  so it is unlikely that such dual representation somehow went unnoticed in the firm’s conflict review.

The subject matter of this demand is the possible breach of fiduciary duties to WWE by McMahon, among others. Should Stockholder’s investigation establish that there were, in fact, such breaches, it would demonstrate that McMahon has acted disloyally to WWE. There is also reason to believe that K&L Gates aided and abettedMcMahon’s breach of his fiduciary duties and may have committed legal malpractice by seeking to purloin control of XFL-related trademarks for the benefit of Alpha and McMahon, if attorneys with the firm did so without the prior knowledge and authorization of the WWE Board of Directors.

WWE has provided scant information about its relationship with XFL.From the announcement of the XFL both McMahon and WWE took pains to explain that the XFL would be separate from XFL. What the Company has disclosed, however, reveals that WWE and XFL have considerable interrelations.

By the end of 2018, WWE was providing services to XFL insignificant amounts. In its 2018 10-K, WWE disclosed that it had provided $1,305,000 worth of services in 2018 under the support services agreement, and that at the end of the year, XFL owed $474,000. WWE’s work for XFL has only grown from there. By Q1 2019, WWE was disclosing that it had provided $1,317,000 worth of services to XFL in the first three months of 2019, and thatXFL owned WWE $1,037,000 as of March 31, 2019. In its Q2 quarterly report,WWE stated that it had provided $2,154,000 worth of services to XFL in the first half of 2019 and was owed $275,000. By Q3, those figures had risen to $2,744,000 and $1,191,000, respectively.

On September 3, 2019, Plaintiff’s counsel delivered to WWE’s registered agent in Delaware a Section 220 Demand seeking books and records relating to the potential diversion of WWE resources for XFL use and the potential usurpation of a corporate opportunity by McMahon.

The lawsuit lists several demands, including all records pertaining to XFL, as well internal emails and employment agreements, including those of Vince McMahon, as well as Eric Bischoff and Paul Heyman.

It’s unknown how far this lawsuit will go, as stockholders filing complaints against companies is something that routinely occurs in business.

Check out the full document below.