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WWE NEWS: New details on WWE's financial stake in "Tapout" brand

May 4, 2015 - 11:23:05 AM
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By James Caldwell, PWTorch assistant editor

WWE_newlogo_16.jpg



WWE released their 10-Q quarterly financial report over the weekend, which included a considerable amount of details on WWE's new business venture with Tapout...

- WWE disclosed that the company entered into a 50/50 deal with Authentic Brands Group in March to re-launch the Tapout apparel brand.

WWE says that WWE and ABG formed a joint venture, Tapout LLC, where WWE will provide "certain promotional services" and ABG will provide "intellectual property and services associated with" Tapout.

As part of the LLC, both companies will hold a 50 percent interest, which entitles both sides to 50 percent of profit, losses, and voting interest. WWE added: "The agreement dictates that all significant activities must be approved by its board of managers, which the parties participate in equally, but do not control. Therefore, WWE does not have the unilateral ability to direct the activities of Tapout."

WWE disclosed that their initial investment was determined to be $13.8 million "based on the fair value of the existing licensing contracts contributed by ABG."

Because of the arrangement, WWE is labeling the joint venture as a variable interest entity (VIE), but WWE is not consolidating the entity because WWE "does not meet the requirements of a having a controlling financial interest." Which means if the joint venture records income or a loss, WWE will record their share of business results based on their 50 percent ownership percentage. Also, any dividends received would reduce the value of the investment.

Going forward, WWE will report revenue "as promotional services are provided to Tapout," which will reduce the existing obligation to promote the brand. The remaining service obligation as of the end of the First Quarter (March 31) was $13.7 million.

The figure also represents WWE's "known maximum exposure to loss," which means if the LLC falls flat, the maximum WWE would be on the hook for is $13.7 million. Future investments beyond the initial deal could also increase WWE's exposure to loss. However, management says the WWE company is shielded from any additional liabilities incurred by the Tapout joint venture.


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