| WORLD WRESTLING ENTERTAINMENTINC Item 1A Risk Factors Our failure to maintain or renew key agreements could adversely affect our ability to distribute television and pay-per-view programming |
| Our television programming is distributed by broadcast and cable networks, and our pay-per-view programming is distributed by pay-per-view providers |
| Because our revenues are generated, directly and indirectly, from the distribution of our televised and pay-per-view programming, any failure to maintain or renew arrangements with these distributors or the failure of the distributors to continue to provide services to us could adversely affect our operating results |
| Our broadcast program, SmackDown, airs on UPN We are finalizing a new agreement with UPN and its successor, the CW Network, which has announced that SmackDown will continue on Friday nights |
| Our failure to continue to develop creative and entertaining programs and events would likely lead to a decline in the popularity of our brand of entertainment |
| The creation, marketing and distribution of our live and televised entertainment, including our pay-per-view events, is at the core of our business and is critical to our ability to generate revenues across our media platforms and product outlets |
| Our failure to continue to create popular live events and televised programming would likely lead to a decline in our television ratings and attendance at our live events, which would likely adversely affect our operating results |
| Our failure to retain or continue to recruit key performers could lead to a decline in the appeal of our storylines and the popularity of our brand of entertainment |
| Our success depends, in large part, upon our ability to recruit, train and retain athletic performers who have the physical presence, acting ability and charisma to portray characters in our live events and televised programming |
| We cannot assure you that we will be able to continue to identify, train and retain these performers in the future |
| Additionally, we cannot assure you that we will be able to retain our current performers during the terms of their contracts or when their contracts expire |
| Our failure to attract and retain key performers, or a serious or untimely injury to, or the death of, or unexpected or premature loss or retirement for any reason of any of our key performers, could lead to a decline in the appeal of our storylines and the popularity of our brand of entertainment, which could adversely affect our operating results |
| The loss of the creative services of Vincent K McMahon could adversely affect our ability to create popular characters and creative storylines |
| For the foreseeable future, we will depend heavily on the vision and services of Vincent K McMahon |
| In addition to serving as Chairman of our board of directors, Mr |
| McMahon leads the creative team that develops the storylines and the characters for our televised programming and live events |
| McMahon is also an important member of the cast of performers |
| McMahon due to unexpected retirement, disability or death or other unexpected termination for any reason could have a material adverse effect on our ability to create popular characters and creative storylines, which could adversely affect our operating results |
| 8 A decline in general economic conditions could adversely affect our business |
| Our operations are affected by general economic conditions, which generally may affect consumers’ disposable income, the level of advertising spending and the size and number of retail outlets |
| The demand for entertainment and leisure activities tends to be highly sensitive to the level of consumers’ disposable income |
| A decline in general economic conditions could reduce the level of discretionary income that our fans and potential fans have to spend on our live and televised entertainment and consumer products, which could adversely affect our revenues |
| Furthermore, a decline in the size or number of retail outlets for our consumer products and consolidation in the retail industry as a result of declining general economic conditions could harm our distribution and sales of merchandise |
| Any of the foregoing could adversely affect our operating results |
| A decline in the popularity of our brand of sports entertainment, including as a result of changes in the social and political climate, could adversely affect our business |
| Our operations are affected by consumer tastes and entertainment trends, which are unpredictable and subject to change and may be affected by changes in the social and political climate |
| Our programming is created to evoke a passionate response from our fans |
| A change in our fans’ tastes or a material change in the perceptions of our business partners, including our distributors and licensees, whether as a result of the social and political climate or otherwise, could adversely affect our operating results |
| Changes in the regulatory atmosphere and related private-sector initiatives could adversely affect our business |
| While the production and distribution of television programming by independent producers is not directly regulated by the federal or state governments in the United States, the marketplace for television programming in the United States is affected significantly by government regulations applicable to, as well as social and political influences on, television stations, television networks and cable and satellite television systems and channels |
| We voluntarily designate the suitability of each of our television shows using standard industry ratings, such as PG (L,V) or TV14 |
| A number of governmental and private-sector initiatives relating to the content of media programming in recent years have been announced in response to certain recent events unrelated to our company |
| Changes in governmental policy and private-sector perceptions could further restrict our program content and adversely affect our levels of viewership and operating results |
| The markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, and we may not be able to compete effectively, especially against competitors with greater financial resources or marketplace presence |
| For our live, television and pay-per-view audiences, we face competition from professional and college sports, as well as from other forms of live and televised entertainment and other leisure activities in a rapidly changing and increasingly fragmented marketplace |
| For the sale of our consumer products, we compete with entertainment companies, professional and college sports leagues and other makers of branded apparel and merchandise |
| Many of the companies with whom we compete have greater financial resources than we do |
| Our failure to compete effectively could result in a significant loss of viewers, venues, distribution channels or performers and fewer entertainment and advertising dollars spent on our form of sports entertainment, any of which could adversely affect our operating results |
| Our production of live events overseas subjects us to the risks involved in foreign travel, local regulations, including regulations requiring us to obtain visas for our performers, and political instability inherent in varying degrees in those markets |
| In addition, the licensing of our television and consumer products in international markets exposes us to some degree of currency risk |
| These risks could adversely affect our operating results and impair our ability to pursue our business strategy as it relates to international markets |
| We may be prohibited from promoting and conducting our live events if we do not comply with applicable regulations |
| In various states in the United States and some foreign jurisdictions, athletic commissions and other applicable regulatory agencies require us to obtain licenses for promoters, medical clearances and/or other permits or licenses for performers and/or permits for events in order for us to promote and conduct our live events |
| In the event that we fail to comply with the regulations of a particular jurisdiction, we may be prohibited from promoting and conducting our live events in that jurisdiction |
| The inability to present our live events over an extended period of time or in a number of jurisdictions could lead to a decline in the various revenue streams generated from our live events, which could adversely affect our operating results |
| 9 Because we depend upon our intellectual property rights, our inability to protect those rights or our infringement of others’ intellectual property rights could adversely affect our business |
| Our inability to protect our large portfolio of trademarks, service marks, copyrighted material and characters, trade names and other intellectual property rights from piracy, counterfeiting or other unauthorized use could negatively affect our business |
| Intellectual property is material to all aspects of our operations, and we expend substantial cost and effort in an attempt to maintain and protect our intellectual property and to maintain compliance vis-à-vis other parties’ intellectual property |
| We have a large portfolio of registered and unregistered trademarks and service marks worldwide and maintain a large catalog of copyrighted works, including copyrights to our television programming, music, photographs, books, magazines and apparel art |
| A principal focus of our efforts is to protect the intellectual property relating to our originally created characters portrayed by our performers, which encompasses images, likenesses, names and other identifying indicia of these characters |
| We also own a large number of Internet website domain names and operate a network of developed, content-based sites, which facilitate and contribute to the exploitation of our intellectual property worldwide |
| We vigorously seek to enforce our intellectual property rights by, among other things, searching the Internet to ascertain unauthorized use of our intellectual property, seizing at our live events goods that feature unauthorized use of our intellectual property and seeking restraining orders and/or damages in court against individuals or entities infringing our intellectual property rights |
| Our failure to curtail piracy, infringement or other unauthorized use of our intellectual property rights effectively, or our infringement of others’ intellectual property rights, could adversely affect our operating results |
| We could incur substantial liabilities if pending material litigation is resolved unfavorably |
| We are currently a party to civil litigation, which, if concluded adversely to our interests, could adversely affect our operating results or could require us to conduct certain aspects of our business differently |
| In April 2000, the World Wide Fund for Nature and its American affiliate, The World Wildlife Fund (collectively, the “Fund”), instituted legal proceedings against us in the English High Court seeking injunctive relief and unspecified damages for alleged breaches of a 1994 agreement between the Fund and us regarding the use of the initials “wwf |
| ” In August 2001, the trial judge granted the Fund’s motion for summary judgment, holding that we breached the agreement by using the initials “wwf” in connection with certain of our website addresses and our former scratch logo |
| The English Court of Appeals subsequently upheld that ruling |
| Since November 10, 2002, we have been subject to an injunction barring us, either on our own or through our officers, servants, agents, subsidiaries, licensees or sub-licensees, our television or other affiliates or otherwise, of most uses of the initials “wwf,” including in connection with the “wwf” website addresses and the use of our former scratch logo |
| As part of its original complaint, the Fund included a damages claim associated with our use of the initials “wwf |
| ” On October 29, 2004, the Fund filed a claim for damages in the English High Court |
| In this filing, the Fund seeks actual damages for legal and other costs of approximately dlra575cmam000, which we have provided for, and further asserts substantial monetary claims in an amount calculated as a royalty based on a percentage of profits from certain of our revenue streams, otherwise referred to as restitutionary damages, over the period January 1997 through November 2002 |
| On January 6, 2005, we filed an application to determine as a preliminary issue the propriety of the Fund’s basis upon which damages have been claimed |
| After a hearing relating to this preliminary issue, in January 16, 2006, by judgment dated February 16, 2006, the Court ruled that the Fund is entitled in point of law to seek restitutionary damages, but that the question whether the Fund is entitled in point of fact to claim or recover damages on that basis remains to be determined, and we have appealed this decision |
| The Fund was ordered to provide further clarification of its claim by March 2, 2006, and the Fund has made such a filing with the Court |
| The Company believes that this alleged clarification does not comply with the February 16, 2006 order, and has applied for an order that if clarification is not provided, the claim for damages should be struck |
| This application is likely to be heard in July 2006 |
| Aside from this application, all other proceedings are stayed pending the outcome of the Company’s appeal |
| We strongly dispute that the Fund has suffered any loss or damage, and do not believe that they are entitled to restitutionary damages |
| We believe that we have strong defenses to the Fund’s unwarranted monetary claims and will vigorously defend against them |
| We cannot quantify the potential impact that an unfavorable outcome of the damages claim could have on our financial condition, results of operations or liquidity; however, based on the Fund’s assertions, it could be material |
| Our insurance may not be adequate to cover liabilities resulting from accidents or injuries that occur during our physically demanding events |
| We hold numerous live events each year |
| This schedule exposes our performers and our employees who are involved in the production of those events to the risk of travel and performance-related accidents, the consequences of which may not be fully covered by insurance |
| The physical nature of our events exposes our performers to the risk of serious injury or death |
| Although our 10 performers, as independent contractors, are responsible for maintaining their own health, disability and life insurance, we self-insure health coverage for our performers in the event that they are injured while performing |
| We also self-insure a substantial portion of any other liability that we could incur relating to such injuries |
| Liability to us resulting from any death or serious injury sustained by one of our performers while performing, to the extent not covered by our insurance, could adversely affect our operating results |
| We will face a variety of risks if we expand into new and complementary businesses |
| We have entered into new or complementary businesses in the past and may do so again in the future |
| For example, we have recently entered into the feature film business |
| Risks of expansion may include: potential diversion of management’s attention and other resources, including available cash, from our existing business; unanticipated liabilities or contingencies; reduced earnings due to increased depreciation and other costs; competition from other companies with experience in such businesses; and possible additional regulatory requirements and compliance costs |
| Through his beneficial ownership of a substantial majority of our Class B common stock, Mr |
| McMahon can exercise control over our affairs, and his interests may conflict with the holders of our Class A common stock |
| We have two classes of common stock, including Class A common stock and Class B common stock |
| The holders of Class A common stock generally have rights identical to holders of Class B common stock, except that holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to ten votes per share |
| Holders of both classes of common stock generally will vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by applicable Delaware law |
| A substantial majority of the issued and outstanding shares of Class B common stock is owned beneficially by Vincent K McMahon, either directly or indirectly as the trustee of The Vincent K McMahon 2004 Irrevocable Trust |
| McMahon controls approximately 95prca of the voting power of the issued and outstanding shares of our common stock |
| Through his beneficial ownership of a substantial majority of our Class B common stock, Mr |
| McMahon effectively can exercise control over our affairs, and his interest could conflict with the holders of our Class A common stock |
| In addition, the voting power of Mr |
| McMahon through his ownership of our Class B common stock could discourage others from initiating potential mergers, takeovers or other change of control transactions |
| As a result, the market price of our Class A common stock could decline |
| A substantial number of shares will be eligible for future sale by Mr |
| McMahon, and the sale of those shares could lower our stock price |
| Although the company is not aware of any such plans, sales of substantial amounts of our Class B common stock by Mr |
| McMahon, or the perception that such sales could occur, may lower the prevailing market price of our Class A common stock |
| Our Class A common stock has a relatively small public “float |
| ” Historically, as a result of our relatively small public float, our Class A common stock has been less liquid than the common stock of companies with broader public ownership, and the trading prices for our Class A common stock have been more volatile than generally may be the case for more widely-held common stock |
| Among other things, trading of a relatively small volume of our Class A common stock may have a greater impact on the trading price of our Class A common stock than would be the case if our public float were larger |