The Hamilton Ave Journal 08.30.08: Volume 1 – Issue 49

Posted by JP Prag on 08.30.2008

It’s a special lawsuit packed edition of The Hamilton Ave Journal as Raven and friends try to become retro-employees, JAKKS finally gets one over on the WWE, and Konnan and TNA set a trial date. All this, plus Shane McMahon leaves Mexico with empty pockets, WWE’s ratings plummet 13% across the board, and Sting overtakes Samoa Joe in the Top Ten.

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 1 – Issue 49

ABOUT THE JOURNAL

The Hamilton Ave Journal is the only wrestling news report focused solely on the business of wrestling. Here in the Journal we not only look at the stories that are important to the investor and business-minded person, but also delve deeper into stories that most fans of wrestling would overlook. That is because the Journal is about getting the heart of the matters that affect the companies and outlooks of the wrestling world.

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.




WHAT'S NEWS

The Journal's front page area known as What's News isn't just about telling you what has happened. The stories in this section are about what will have an effect on the wrestling industry, individual federations, and the wallets of the fans.

LEAD STORY: More details on "Employee" Lawsuit

This past week, plenty of details were released in Scott Levy's (aka Raven) lawsuit against the WWE challenging his "independent contractor" status. As covered by the Journal two weeks ago, Mr. Levy is alleging that the rules implemented in his contract with the WWE made him an employee, not an independent contractor. As a result, he was and still is denied benefits that would befit an employee. As a side result of the case, should Mr. Levy and other be found to be employees, the WWE will owe a large amount of taxes on back taxes and have to pay a fair amount going forward.

Thanks to British tabloid the Sun UK, the Journal was able to review the legal briefs filed by Mr. Levy's law firm Silver, Golub, & Teitell, LLP and the WWE's response. Among the information in the briefs was the fact that the case is being filed by Scott Levy, Christopher Kluscaritis (Chris Kanyon / Mortis), and Michael Sanders ("Above Average" Mike Sanders). Additionally, "all similarly suited individuals" are included in the suit, which is being files as a class action. That means that should anyone else wish to join the case, they are free to do so. It also means that should these three men be found as employees, anyone employed by the WWE since July 16, 2002 would also receive the same benefits (the suit specifically calls for anyone working for the WWE "within six years of July 16, 2008, and who were improperly classified throughout their tenure as ‘independent contractors.'").

As written in the brief, the following are reasons the group is challenging their status as independent contractors (paraphrased below):

The WWE controlled their physical and skill-set training.

The WWE determined where, when, against whom, and how they completed.

The WWE "has the right to require that the wrestler complete in a team and has the right to choose co-workers for such a team". In other words, an independent contractor has the right to determine with whom they work and what teams they will be in while an employee does not.

The WWE controls how a wrestlers looks and competes, including hair style, clothing, props, persona, mannerisms, and signature moves.

The WWE can use the "wrestler's likeness or image in perpetuity".

The WWE can create any type of intellectual property or other product based on the likeness or image.

The WWE requires drug screening.

The WWE "unilaterally determines how the wrestlers are compensated." Although wrestlers sign a contract to determine downside guarantees, per-appearance fees, and perks, the Journal has covered in the past the WWE determines at what basis a wrestler receives any monies from their product sales. When questioned directly about the formula used during a conference call several years ago, the WWE stated that the equation was an internal matter and was at their discretion, though no one had complained about payments.

Aside from these claims, the group alleges that as a result of these actions the WWE was in breach of contract of their initial booking contracts and that the WWE received "unjust enrichment" as a result.

What are they asking for? Well, no specific figures were given but three items were asked for:

The courts certify the action as a class lawsuit for all similar suited individuals

"compensatory damages"

"such other relief as the Court deems proper.

It is quite odd that the group is not seeking specific damages, but that most likely is because the specific number of plaintiffs is unknown. Also, as mentioned in the Journal, this suit may be more about long-term unemployment and disability benefits more than it is about one-time payments.

The WWE was quick to respond and made a win right at the beginning. In their response, the WWE made the case that filing in the state of Connecticut was not within the court's jurisdiction and that this should be in a federal court since the laws are national and across multiple states. The courts quickly agreed and the case was moved up.

Also within the brief to the federal courts, the WWE laid out several counter-claims (and even pointed out a reference mistake). But the WWE's head lawyer Jerry McDevitt sat down with the Sun UK to highlight those points.



Says Mr. McDevitt:

"I think the key point to be made here is that every one of these people signed contracts acknowledging they were independent contractors.

"They contractually agreed that they would take care of their own health benefits and all the rest of that stuff."

Unfortunately, just because it is written in a contract does not make it legal. For instance, you can have written into a pre-nuptial agreement that a partner must provide a certain amount of sex, but that is the equivalent of prostitution and has been struck down in several court cases. Also, a contract does not necessarily protect an individual or a corporation. Take this example: a single individual forms a corporation and the corporation fails to pay taxes. Courts have found in the past that if a single or few individuals are the direct recipients of a corporation, they can be found personally liable for that corporation's actions, despite the corporation being a separate legal entity.

What is more interesting, though, was this note:

"The IRS has never challenged the treatment of our wrestlers and they have audited the company several times."

The question is when these audits occurred. If any were within the past six years, than the WWE has an extremely strong counter point. But if it was beyond that, the wrestlers involved can make the claim that in the past their service was more like an independent contract and not like the employment environment. When asked about the specific claims of the WWE controlling matches, looks, and where and when they work, Mr. McDevitt said:

"None of these things make them an employee.

"Wrestlers are not like normal office workers.

"They don't go to the corporate headquarters and they don't have any corporate duties.

"Their basic duty is to show up and perform as a highly skilled professional. That's what they're paid to do.

This reporter would take particular umbrage to this comment. Outside of duties at 411mania, this reporter is also a full-time employee of a consulting firm. He does not go to a corporate headquarters, does not have "corporate duties", and his basic duties are to show up where and when required and perform as a highly skilled professional. Going to a corporate office and having corporate duties has little to do with being an employee. Truck drivers, business development managers, and many other similar "on the road" jobs do not fall under those categories, and the IRS has had cases in the past that show that. A "work environment" can be anywhere where work is performed and that is why the 3-point test was developed.

And an interesting twist of fate, it was Jerry McDevitt who may have provided the final fodder to help the plaintiffs. Several years ago, Nichol Bass sued the WWE for sexual harassment. As part of the sexual harassment laws, a person has to be considered an "employee". Says Mr. McDevitt:

"So a preliminary issue that came up was whether she was an employee, for Title VII purposes, or an independent contractor.

"She was determined to be an employee.

"When it went to trial however we got a complete defense verdict and she never got any money, so there was never any further appeal or need to appeal that determination.

In other words, the WWE prevailed against the sexual harassment charges, but at the end of the day she was found to be an employee.

Despite this, the WWE is confident in their ability to win this case. Finishes Mr. McDevitt:

"And we will be moving to dismiss the lawsuit in its entirety.

"There are numerous and multiple grounds upon which we think they have not got any claim against the company."

The Journal will stick close to this case to see what those grounds are and where this case goes.

In the meantime, there are more facets to this case to discuss. Next week, the Journal will tackle this issue sent in by Just Adam:

Going back to the article two weeks ago about contractors vs. employees, in case it hasn't been brought up yet, how is what the WWE is doing for their contracted talent different from players contracted to the NFL, MLB, etc? Most (all?) of what you described seems to apply to these leagues as well, specifically how the athletes get paid while injured and the risk of "losing their spot". The behavioral category that was given is practically identical to the WWE and professional sport leagues (ongoing evaluations, preseason training, more detailed degree of instructions). If the big "real" sports leagues can get away with similar tactics, what makes you think things will change for the WWE?


JAKKS and WWE Split… for a bit

In the lawsuit that won't quit, JAKKS Pacific and the WWE reached another critical juncture on August 29, 2008. This case first began on October 19, 2004 when the WWE filed fourteen counts against JAKKS including bribery and racketeering. Progress was slow and involved the case moving between different courts and several countersuits and amendments.

Then JAKKS sent out a press release stating the following:

Jakks said the court dismissed WWE's bribery and anti-trust claims against it and its principals, in a summary judgment.

The toymaker said it is reviewing the decision and may say more about it at a later date.

So as it would seem, nearly four years of litigation has led to nothing for the WWE. But the WWE was quick to send out a response:

World Wrestling Entertainment issued a statement that its litigation efforts against Jakks/THQ would continue despite a ruling in Connecticut State Court:

"The decision today from Connecticut State Court says that the prior federal court decision in this matter precludes the Connecticut court from allowing WWE to present our case on the merits. We believe the federal court decision was wrong, and are taking steps to have it corrected on appeal."

In other words, the WWE will be appealing this result and the case will continue.


Konnan gets a date

Though the roots of this case begin in the summer of 2007, on March 20, 2008 former WCW and TNA star and current AAA affiliate Konnan made it public knowledge that he had filed suit against TNA and his lawyers had delivered papers into their hands. The suit makes allegations of racial discrimination, negligence and broken contractual promises by TNA management, copyright ownership of "LAX", and issues around drug use, among others.

Although they had 30 days to respond, TNA took just over a week to file a countersuit contending that Konnan was an independent contractor and all risks, injuries, and recovery costs he took on were contractual agreements. This, in turn, led to more items being listed by Konnan, including challenging his status as an independent contractor instead of an employee, similar to the WWE suit above.

After months of back and forth legal papers and court documents, both TNA and Konnan have agreed with the courts for a trial date of October 26, 2009. Yesterday—August 29, 2008—was the last day for discovery. The courts are urging both sides to settle out of court, and the discovery phase will help TNA determine if they are willing to settle to avoid a lengthy and costly trial. As with many court cases, it may be cheaper for TNA to settle rather than to pay for an ongoing trial.


Newsbites

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

Last week, WWE Executive Vice President of Global Media Shane McMahon travelled to Mexico to meet with representatives from television networks to expand WWE programming in the country. The meetings appear to have not gone well as both Televisa and TV Azteca turned Mr. McMahon down. Reports indicate that the WWE's price for their programming was far more than either network wanted to pay.

Although holding weekly television tapings, WWE Development territory FCW still does not have a deal of their own in place. FCW is claiming they will air on either a local Fox or CW affiliate, but thus far neither network has committed to programming and fall season is set to begin. Most likely the networks would only consider beginning to air the program in January at this point.



MARKETPLACE

In the Marketplace we look at the trends in television ratings. This section is less for critical analysis by the Journal but more for the reader to see what is really going on and to draw their own conclusions.

As with stocks, here in the Journal we track the progress of television ratings. If ratings are the barometer by which we judge the product, then over the course of 52 weeks we should be able to see patterns, trends, and anomalies. Please note that gaps in the chart below are due to data not being released/available.

For the week ending Thursday August 28, 2008, here are the current standings of our shows:





RAW
Close (This Week's Rating): 2.8
Open (Last Week's Rating): 3.3
Percentage Change: ▼ 13.9%
52-Week High: 4.1
52-Week Low: 2.5
All Time High: 8.1
All Time Low: 1.8

SmackDown*
Close (This Week's Rating): 2.1
Open (Last Week's Rating): 2.4
Percentage Change: ▼ 12.5%
52-Week High: 2.9
52-Week Low: 1.6
All Time High: 5.8
All Time Low: 1.0

* SmackDown! ratings may include fast overnight if final ratings are not posted. Also, SmackDown! ratings are for the prior week as overnights are not available before this article goes to print.

ECW
Close (This Week's Rating): 1.3
Open (Last Week's Rating): 1.5
Percentage Change: ▼ 13.3%
52-Week High: 1.6
52-Week Low: 0.6
All Time High: 2.3
All Time Low: 0.6

TNA iMPACT**
Close (This Week's Rating): 1.1
Open (Last Week's Rating): 0.9
Percentage Change: ▲ 22.2%
52-Week High: 1.2
52-Week Low: 0.9
All Time High: 1.2
All Time Low: 0.6

** TNA iMPACT's are for the prior week as ratings may not be available at the time of the Journal's posting

Analysis:

With the end of the Olympics in full gear, the WWE suffered in the ratings this week. It began last Friday with SmackDown and continued to RAW which was preempted to SciFi with a replay on USA network (that ended up starting an hour late according to this reporter's DVR). Without smaller audiences to advertise to, ECW ended up dropping a similar 13% as SmackDown and RAW. It has been demonstrated in the past that a better RAW rating often translates into a better ECW rating, the opposite is also true.

That means the only winner this week is TNA who rebounded after last week's big drop with a 22% gain back to the normal 1.1 level. The last time iMPACT saw a 1.2 was on March 6, 2008—almost 6 months ago. iMPACT took some pretty bad hits earlier this year and are coming into their most difficult time of year, so keeping the rating high will be especially important before October.


MONEY AND INVESTING

We all know that wrestling is a business, but we don't often pay attention to what sells and makes money. Money and Investing looks into the top selling items in the world of wrestling and any interesting figures that may have come out this week.

What are the top ten selling items for the WWE? From WWEShopZone.com:

1. WWE Ultimate Rivals Trading Cards ($2)
2. John Cena You Can't See Me Backpack ($35)
3. Jeff Hardy Armbands ($15)
4. Hardys Purple Logo Pendant ($10)
5. WWE Superstars Folder ($5)
6. WWE Superstars Spiral Notebook ($5)
7. Hardys Messenger Bag ($35)
8. John Cena Backpack ($25)
9. WWE Black Gift Bag ($3)
10. D Generation X Backpack ($25)

The pattern from the last two weeks continues again as back to school supplies and backpacks dominate the field, mostly led by John Cena and the Hardys. With John Cena going out on injury again, his sale numbers might start to quickly slip off. While he was away last time, many items surprisingly hung on for a while, but not as well as Jeff Hardy's did during his last suspension. For the next few weeks he is most likely fine, but come the middle of September and this list will look very different.

TNA releases a list of Top Ten selling items, but the list has not been updated to current products in quite some time. Until TNA updates the list, the Journal will be take the list of featured products and sorting by most popular. When done so, the list comes up as:

1. TNA Global iMPACT DVD ($19.99 – OUT OF STOCK)
2. Bound for Glory 2008 FanFest Tickets ($40)
3. The Phenomenal AJ Styles Deal of the Century ($79.95)
4. AJ Styles "Unim Phenomenous" T-Shirt ($19.99)
5. Complete 100 Card Set ($24.99)
6. Nash "Big Sexy Tour" T-shirt ($19.99)
7. Sting "Logo" T-Shirt ($19.99) ($19.99)
8. Samoa Joe "Drastic Times, Drastic Measures" T-Shirt
9. Blaster Pack ($24.99)
10. TNA "Cross The Line" T-Shirt ($19.99)

For the forth week in a row an item with an inventory of 100 is still on the list and is still not sold out. But one item did finally sell out: The Global iMPACT DVD. That has been number one on this list for most of this year, so perhaps it will finally leave the front page and another item can move up. Also on the move this week was Sting who switched places with Samoa Joe. So despite rarely being on TV and demanding a high paycheck for little work, Sting does manage to sell.


PERSONAL JOURNAL

Wrestling isn't just about watching and reading. The best way to be a wrestling fan is to experience it live. Where is wrestling coming to in the next 2 weeks? The Personal Journal answers that question.

Sunday	Monday	Tuesday	Wednesday	Thursday	Friday	Saturday
31 WWE SuperShow (St. Louis, MO)	1 (Sep)	2	3	4	5 SmackDown / ECW SuperShow (Rochester, NY) TNA Live (Westbury, NY)	6 SmackDown / ECW SuperShow (Jamestown, NY) TNA Live (Manhattan, NY)
7 WWE Unforgiven (Cleveland, OH) TNA Live (Albany, NY)	8 RAW (Fort Wayne, IN)	9 SmackDown / ECW (Milwaukee, WI)	10	11	12 RAW Live (Texarkana, AK)	13 RAW Live (Little Rock, AK) SmackDown / ECW Live (Jackson, MS) TNA Live (London, Ontario, Canada) ROH Live (Tokyo, Japan)

Do you know a wrestling event coming up? Send one in to The Hamilton Ave Journal and we'll be sure to add it to the list.

EDITORIALS

The Editorials section is designed for you, the readers, to respond to the views presented in the Journal, send an important news item, or talk about another overlooked business related item in wrestling. Just beware: the Journal reserves the right to respond back.

From the commentary section last week, Manbearopig began with more thoughts around the Raven lawsuit covered above:

I don't know what your educational background is, but you write a pretty decent column even if all of your analysis isn't spot on.

Bachelor of Business Administration with concentrations in Entrepreneurship and Strategy and coursework in Business and Constitutional Law. Also, a certificate in European Integration, although that isn't relevant here.

However, unless you have a law degree and have spent hundreds of hours looking back at case law, Raven's suit against WWE is not "cut and dry."

The law is never cut and dry and there are no definite wins. Your layman's analysis was pretty decent but a real lawyer would be able to use case precedent to get around Raven's entire case.

The Journal agrees that "cut and dry" was not the right terminology, but that the law outlined was in favor of the plaintiffs. And the law itself is not the issue, it's the jurisdiction. Interpretation, reinterpretation, individual judges, and legal teams make up much of the decisions. Laws are usually laid out; courts are the real question marks.

Not to mention that if you look at it from a business perspective, WWE's legal team is, by default, vastly superior to whoever Raven has hired. Even if Raven has a strong case, WWE's legal team will get the money and put in the hours to make sure that the WWE is getting a favorable judgment. Money goes a long way in the law and how successful a case may be. That might seem sad, but it is also true.

The Journal did cover this point in saying the WWE's legal team is vastly superior and has any more resources behind them. Just reading through the legal briefings it can be plainly seen how different the styles are of the two legal teams are. At one point, the WWE's legal team even points out a typo on the original complaint and responds to it. But also mentioned then is that this goes beyond the civil suit. Even if the WWE prevails on most counts (and there are many points that they can win on), the IRS may decide now is the time to say these people are employees and go to collect taxes and back-taxes.

Your view of the law is a bit naive, but otherwise, good work.

Optimistic is more accurate, but the Journal does not intend to present an entire case study. Should the day come that the Journal launches a separate law paper (although this issue was close), feel free to tear that one apart.

Also of interest is the WWE's newest member of the Board of Directors, and one who hopes to be there in Guest:

I own more shares of WWE than Riddick. Can I get on the board?

Not unless you have something else Mr. McMahon wants and can help make the books the way he wants them.

411mania's own Mathew Sforcia wanted to know a little more about sales:

Does ROH have a best seller list? Or an indy site like Highspots or something? That would make an interesting comparison with WWE and TNA...

ROH does not have a best seller list, and this reporter is unaware of any others. Still, the comparisons would not be very good since the volume of an indy site would be even less than TNA. TNA and WWE do not even compare that well. What might be more interesting are sales numbers from a large organization in another country like AAA or NJPW. What are big sellers in these places? Perhaps this will be a special article down the line.

Also coming from the e-mail this week is poster Brad B:

For months, I have said that Vince's contest was actually a brilliant idea that probably made WWE a lot of money even though it didn't increase ratings. Basically, Vince spent $3 million to compile a complete database of dedicated WWE fans who have an interest in the product and would be most willing to purchase WWE products and services.

As a guru about the actual financial aspects of the business, I'd be curious to hear if you agree with my assessment, or if the lack of ratings is the only true barometer of whether or not the promotion was a success or failure.

And although Brad B sent this e-mail to Ask411's Chris Lansdell thinking he was this reporter, the Journal will still endeavor to answer. Obviously, ratings were a huge reason for this contest as USA was demanding that the WWE pop ratings. And when it because apparent quite quickly that that wasn't going to happen the contest ended.

Now, you are correct in the fact that the WWE got a large list to mass market to, but they most likely had a good deal of that list already. Between ShopZone, online contests, WWE Jukebox, polls, and mailing list, the WWE did not get a much larger database. Also, mass marketing techniques like direct mailings and e-mails do not yield high rewards and the WWE has always had better response with media advertising.

But the contest was not a loss of the WWE. Vince McMahon personally reimbursed a large amount of the money and both Mr. McMahon and the WWE got several tax benefits. At the end of the day, the contest did not cost as much as advertised.

So overall, while the contest cannot be considered a moneymaker, it was not really a loss either. More likely, consider it an experiment that went nowhere.


Plenty more was written, so be sure to take a look. And of course, a week would not be complete without a good dose of JP Prag's own HIDDEN HIGHLIGHTS!!


CLOSING BELL

This concludes Issue #49 (Volume 1) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.

Till then!