The Hamilton Ave Journal 12.06.08: Volume 1 – Issue 63

And where is Hamilton Ave? That is the location of the WWE Production Studio in Stamford, CT, and thus the most powerful place in the wrestling world. Besides, The East Main Street Journal just does not have the right ring to it.

Who am I? I am JP Prag: consultant, entrepreneur, businessman, journalist, and wrestling fan.

Now, ring the bell because the market is open.

LEAD STORY: Once more into the lawsuit

As mentioned last week in the Journal as soon as the news came in, the lawyers for Scot Levy, et al. vs. the WWE for “employee” status finally filed the papers in response to the WWE’s motion to dismiss. The Journal had speculated why the plaintiffs needed two extensions to finish their papers and wondered what the stalling would help in their situation, but upon reviewing the papers the lawyers made reference to 55 prior cases of a similar nature. Obviously, it takes a long time to coral all of this information and put it into a useable format, so it looks like the time was well spent.

One of the first arguments the WWE makes is that wrestlers knowingly and willingly sign a contract that states that they are “independent contractors” and not “employees”. That is where the lawyers made their first big play:

[T]he employment status of an individual… is not determined solely by the label used in the contract between parties.” Sharkey v. Ultramar Energy Ltd., 70 F.3D 226 (2d Cir. 1995).

In other words, despite what the words in the contract say, that is not how “employment” status is verified. Instead it is done by a set of rules covered in Issue #47 of the Journal on August 16, 2008. They go on to not only reference the Nichole Bass case (covered in Issue #49 of the Journal on August 30, 2008) when Ms. Bass was deemed an employee in a sexual harassment case that was eventually settled out of court, but go on to quote and link to the Sun UK article in which WWE lawyer Jerry McDevitt admitted that this happened!

The plaintiffs go on to argue that the WWE had no right to ask for a dismissal at all because disputed facts cannot be part of a motion to dismiss and that the statute of limitations does not apply because it is not when the wrestlers signed their contracts that is the point of loss, but when they realized they were denied employee rights during that contract. Additionally, further in the argument the lawyers state that the Connecticut six year statute of limitations does not apply when there is “continuing conduct”, which is another reason they are suing on behalf of all similarly situated individuals. By doing that, anyone who has signed a contract or is under contract would be represented in this case and the statute of limitations would be a moot point.

They then circle back to the fact that an “employee” cannot wave his rights of being an “employee” because it is a matter of federal designation, not personal choice:

“[I]f the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than of employer and employee is immaterial. Thus, if such a relationship exists, it is of no consequence that the employee is designated as a[n]… independent contractor.” Eisenberg v. Advanced Relocation & Storage, Inc.

At this point, the response slips in a little note that not only are the parties suing to determine if they were denied employee benefits or not, but if they may be owed back royalties based on further breaches of contract. This has not bee mentioned before and was placed as a footnote that the parties may modify the suit to include a breach of contract not only for their status but for missing royalties.

In what comes as surprising moment, the paper states several times that the wrestlers were not reimbursed for travel and that employees of the WWE doing the same travel were. In this way, they are saying they were done financial harm (the WWE claimed no harm was done to them so they have no grounds to sue) and that in comparison they should have had the same rights as the writers and executives who travelled with them. This, though, led to one of the weaker arguments in the response:
‘
Likewise, to the extend that the defendant provided vacation pay, sick pay or other forms of non-ERISA leave to its employees, plaintiffs are entitled to recover such benefits which the were denied as a result of their having been wrongly labeled as independent contractors. Similarly, to the extent that there were any other non-ERISA plans that apply to all employees of defendant WWE – such as, for example, a stock option plan – plaintiffs would be entitled to recover the benefit of such non-ERISA plans pursuant to the breach of contract allegations…

There is no case citation here and with good reason: there is no legal ground to make such a claim. The WWE is a private employer and can choose to give or take away benefits of any of any of its employees except what is covered by federal law. Insurance, stock option plans, 401K, and the like are not protected and guaranteed just because an employer has them. Though the contracts the plaintiffs signed may have been in error classifying them as “independent contractors”, it was still specific in the benefits they were given and what they were not given. Should they be found employee, the WWE most likely will just have the federal and IRS issues to deal with, not anything out of their personal portfolio of benefits.

Despite this, the plaintiffs argue that they can amend their complaint and specifically site that they should have been allowed to enroll in “the World Wrestling Entertainment, Inc Group Insurance Plan and the World Wrestling Entertainment, Inc. 401(k) Plan.” This is followed up with another lengthy discussion about why this argument also does not fall under the statute of limitations.

Overall, it was a strong argument refuting the WWE’s attempt to dismiss. Although the plaintiffs may not get everything they want, they at least stand a solid chance to get this case moved into the next phase. We may still be years away from a decision, but the Journal will continue to follow this case closely due to the repercussions on the WWE and industry as a whole.

One of those repercussions is asked for by The Weesel:

My question is If the courts do decide that the WWE must make said 140 current wrestlers on their roster employees instead of independent contractors, and Levy’s argument does look very effective, can the IRS go back and withdraw back taxes? If that happened, how much money would that cost the WWE and what would it do to business? Would that be something that could actually happen? We all know how much a sense of humor the IRS has when it comes to Vince McMahon. Looking forward to your article sir.

Luckily, the Journal covered this exact point in Issue #47 of the Journal as well:

That means that for several decades the WWE has not paid unemployment, disability, and workman’s compensation taxes because those are not needed for independent contractors. As Eric Bischoff said in his most recent blog:

That is one of the main questions: how far would the IRS go? If on average a wrestler makes $200,000 a year, that means that $15,000 would have to be paid by the WWE in taxes. Multiply that times 80 wrestlers and the total comes out to $1.2 million dollars. That is less than 1/4th of a percentage point of the WWE’s top line for the year, so that is not a major issue. But should they decide to go back ten years, that total becomes $12 million, a nice chunk of change.

Despite that chunk of change, the WWE does have a lot of cash on hand. Even in a worst case scenario they can stop paying the dividend to make up the fee. It will hurt, but the IRS does have a limit in what they can take in this case, plus some penalties.

Still, that decision is a long way off, and there is plenty more case to go.

WWE and TNA cutting cost and people

This past Friday, the United States released its new jobless claims report, and the numbers were worse than expected. Analysts projected 330,000 new job losses, but instead employers axes 533,000 positions. On top of this, the September and October number were revised upwards, meaning that this year nearly 2 million jobs have been shed. Despite a slight rise in consumer confidence this month, the prior month’s all-time low still lingers. What this means is that people are afraid: afraid for their jobs, their futures, and their families.

What must be remembered is that corporations are still run by people. People are going to have emotional reactions and not process everything correctly. When seeing that consumer confidence is down and that people are losing jobs, the first reaction is that the bottom is falling out and cost much be cut immediately in order to weather the storm. In other words, the perception of the issue is what creates the issue.

Take for instance the WWE. Although cost have been on the rise, the WWE is still a very profitable and cash rich organization. Since they do not want to look at the bigger picture and the top of their organization structure for problems, they have begun to remove people and processes in order to make one plus one equal three. WWE CEO Linda McMahon has pledged $20 million in cost reductions (although that $20 million is already spent when comparing costs year-to-date to last year), and the measures have already started.

One such measure was the new referee program covered last week where referees will rotate crews every other week and across all shows. The company has already released nearly 10 wrestlers and development talent, and most people in the organization do not feel safe. Where would they go if they were released? AAA in Mexico already has enough foreign talent; TNA has an over-bloated roster and looking to cut costs of their own; ROH cannot afford higher end talent; Japan is having economic issues and cannot bring in much foreign talent. Even the European market is less viable as combinations of the WWE running too often and NWE having to cancel shows has led to less sell-out crowds and lower dollars per customer. Ratings for RAW in the UK two weeks ago dropped 27,000 viewers to 56,000 (RAW has two airings in the UK, and the replay is the one that has the higher ratings) showing that even that market is not ripe.

Despite the issues with talent, even the WWE’s corporate employees are feeling that they could be on the chopping block, and with good reason. Many who have worked for the WWE in the past have described it as a high pressure, long hour environment with extreme pressures to deliver. For an office of its type, the WWE is said to have a high turnover rate due to the stresses of the job with below industry average pay. Now the office employees are in a situation where the WWE knows they have no option (a 6.7% unemployment rate nationwide means that there are far too many people applying for the same positions) and will take advantage of that. These moves are not made out of malicious intent, but they will have the same result. WWE employees at the very lease can expect all raises put on hold, longer hours, and more loads as other employees are let go or leave of their own volition and the positions are not filled.

As another move on the production end, the WWE has decided to double up on several SmackDown tapings through the end of the year and then may continue the trend into next year if they find them successful. To produce an episode of SmackDown, it cost roughly $696,000. Taking away half the tapings will have a rough savings of over $18 million, although the double tapings will most likely cost a bit more. Even if the cost of the double tapings rises to $800,000, there is still a savings of over $16 million.

Many are worried about burning out crowds and underpaying wrestlers (they are only being paid for one appearance), but there are benefits. The show does not have to be taped normally where backstage moments and promo videos could be taped earlier in the day and the action in front of the crowd does not stop. That would mean a 3 hour show for the crowd that was mostly put together in post-production. In this way, the crowd is not burnt out and the wrestlers do get an extra couple of days off every other week. One of the main reason talent leave the WWE for TNA (and many talent have, despite the contrary opinion) is for a lighter schedule. With TNA increasing their schedule and the WWE decreasing its, then SmackDown becomes a better option for many people.

Though TNA has been increasing their schedule, they too realize that costs are an issue. Unlike the WWE, they are not cash rich and do not have a history of steady profit. On the contrary, they have a history of overspending and reaching too far into the future. Although the TNA iMPACT video game did not affect much of their bottom line (Midway had absorbed most of the costs of production), TNA still has growth issues to contend with in a tight market.

Rumors have been swirling around that TNA would be cutting lower-end talent, but this seems less likely. Many people on TNA’s roster (and not on the official roster but just under contract) have a pay-per-appearance deal with a no-compete clause only. Because of this, there is no cost benefit associated with releasing them when they can just continue to use talent when they see fit. More than likely, TNA will just not fly as much talent into events and may consider having weeks where there are three iMPACT tapings in a row instead of just two.

Though if even half of contracts listed in the gossip rag The Thursday Small-For-All News Report are true, than TNA’s bigger issue is with some of their top-rung talent, not the bottom.

In a surprise move, though, it appears as if TNA will not be taking a production crew with them to the Uk in January to do another Global iMPACT special. Spike TV has originally committed to the idea when the trip was planned and TNA will be performing in front of their largest audience ever. TNA talent is also going over to Japan after that, and there are no plans for taping there. Outside of being a highly praised show, the Global iMPACT DVD was one of TNA’s best sellers of the entire year. Much like how TNA did not pay attention to how poorly booked PPVs led not only to lower buyrates but also to lower DVD sales, they have not seen that a special of this nature makes itself up in DVD sales down the line. No one is saying there are not a lot of upfront costs, but there is some profit to be gained by it if TNA has the patience.

Right now, it is a tough time for a lot of people, even the so-called resilient wrestling industry. WCW had their greatest period of growth after the 1990-1991 recession but died at the beginning of the 2001-2003 recession. The WWE as we know it today really began during the 1980-1982 recession. In the end, there is hope and growth that can come out of a recession, so long as one is willing to find the opportunity and not just react to the situation.

Newsbites

Some items of note in the rest of the wrestling business world: