Tuesday, April 05, 2016

Class Action Against WWE Gets Body Slam by Court

By R. Jason Howard, J.D.

A federal district court in Connecticut has granted a motion to dismiss a class action brought by shareholders alleging securities violations by executives at World Wrestling Entertainment, Inc. (WWE) for false statements or omissions made in connection with the company’s ability to multiply and transform its earnings profile (In re World Wrestling Entertainment, Inc. Securities Litigation, March 31, 2016, Thompson, A.).

Allegations. The plaintiffs argued that through a series of earnings conference calls and press releases during the class period from October 31, 2013, to May 16, 2014, the defendants misrepresented or omitted information concerning: (1) the size of WWE’s fan base; (2) the potentially cannibalistic effect of launching the WWE network; (3) a comparison between WWE and live sports; (4) the status of negotiations with NBCU; and (5) statements regarding the potential to double or triple the company’s 2012 OIBDA by 2015.

Findings. In each instance, the court sided with the defendants except as to the statements comparing the WWE to live sports, concerning which the court said that the plaintiffs had alleged “facts sufficient to suggest that there is a substantial likelihood that the disclosure of the discrepancy in advertising revenue would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” The court added that, given the context in which the statements comparing the WWE to live sports were made, there were sufficient facts to suggest that it was misleading to benchmark WWE advertising revenue against sports like NASCAR and that in order to render such a comparison not misleading, the discrepancy in advertising revenue needed to be disclosed.

Scienter. The court concluded that the plaintiffs had adequately pleaded material misrepresentations or omissions with respect to the statements comparing the WWE to NASCAR and other live sports without disclosing the discrepancy in advertising revenue, but not with respect to other categories of misrepresentations or omissions asserted. Therefore, the court only considered whether the plaintiffs had adequately pleaded scienter with respect to the statements that compared WWE to NASCAR and other live sports without disclosing advertising revenue, and determined that the plaintiffs had failed to do so.

Conclusion. The plaintiffs failed to allege facts sufficient to suggest that the defendants’ statements about the size of WWE’s fan base, statements about the cannibalistic effect of launching the WWE network, statements about the status of negotiations with NBC, and statements regarding the potential to double or triple OIBDA were materially false or misleading. Accordingly, the complaint was dismissed.

The case is No. 3:14-cv-1070 (AWT).

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