MR. TITO STRIKES BACK – How Tax Cuts Could Help the WWE and Vince McMahon… And Maybe Bring Back XFL Football?

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Welcome back to the EXCELLENCE IN COLUMN WRITING exclusively here at LordsofPain.net / WrestlingHeadlines.com. This column is sort of a follow-up to my recent column covering Net Neutrality relating to the WWE and WWE Network. Today, I want to continue down that headline news route and discuss the potential Tax Cuts looming and how that could benefit the WWE Corporation and Vince McMahon.

First and foremost, let’s discuss what this Tax Bill potentially has in store if it passes sometime this week (very close margin vote in the Senate):

– The Top Corporate Tax Rate for companies earning $18.3 Million per year in Net Income will be decreased from 35% to 21%. WWE Corporation is in that top tax tier when earning $53.2 million last year in Net Income. WWE actually paid 36.5% during 2016.

– The Top Personal Income Tax Rate is 39.6% for married couples earning $470,700. Per this bill, that top rate reduces to 37% but the top income amount becomes $600,000 for married couples. Vince McMahon is set to earn $1.4 million base salary and one can assume that Linda McMahon is making several hundred thousand as a Trump cabinet member. Also keep in mind that Vince McMahon is the majority WWE shareholder and any gains in the stock’s value plus dividends will be subject to capital gain tax rates.

There are other line items in this extensive tax bill but I’m aiming at those that specifically aim at the WWE and McMahons.

As you may see in the news, there are a lot of political discussions on Tax Cuts and their effectiveness as an economic policy. Much of it is “politics” as usual with opposition just being against whomever is in charge. Goes both ways per election cycle. However, to understand why a Government would cut taxes is to understand economic policy AND consumer/business behavior towards tax rates. For instance, there is a balance between liking the services that tax revenues provide versus the “saturation point” where a tax rate feels too high and is treated like an expense. For the latter point, there’s also a feeling that Government is creating unnecessary services or is becoming too large. That leads creates a political and economical debate between Static Analysis (mathematical where tax rates and income move in the same direction) and Dynamic Analysis (behavior response by tax payers to cause opposite reactions to tax rate changes).

Specifically in Economics, there is a theory called “Supply Side Economics” which theorizes that policy makers can utilize reduced business tax cuts in order to stimulate the economy. To further understand this, let’s evaluate the WWE’s 2016 Financials per their 10-K Financials:

ACTUAL WWE Income Statement for 2016:

Total Net Revenues: $729.2 Million
Total Cost of Revenues: $430.0 Million
OTHER Expenses & Depreciation/Amortization: $246.0 Million
NET INCOME before Taxes $53.2 Million

Provision for Income Taxes $19.4 Million (36.5% tax rate)

Net Income (tax adj): $33.8 Million

WWE Income Statement for 2016 with a 21% Tax Rate

Total Net Revenues: $729.2 Million
Total Cost of Revenues: $430.0 Million
OTHER Expenses & Depreciation/Amortization: $246.0 Million
NET INCOME before Taxes $53.2 Million

Provision for Income Taxes $11.2 Million (21% Tax Rate)

Net Income (tax adj): $42.0 Million

By reducing WWE’s tax rate during 2016 from 36.5% (should be 35%) to 21%, WWE’s Net Incoming (tax adjustable) increases from $33.8 Million to $42.0 Million. That is just over $8 million in additional income earned that they didn’t have because of the higher tax rates.

The question then becomes this: What does the WWE Corporation do with that $8 million from a lower tax rate?

In theory, the WWE Corporation could do one of the following:

(a) Pay wrestlers more.
(b) Hire more employees.
(c) Expand current operations.
(d) Reinvest in their current product to improve (like TV production, for example, which was scaled back recently).
(e) Invest in other industries (like film, music, football leagues, bodybuilding competitions, etc.)
(f) Buy goods and services (someone has to make those), such as expanding Titan Towers, buying new trucks, private jets, etc.
(g) Place it in the Bank as Deposits which boosts a Bank’s Liability side of the balance sheet, effectively also expanding the Asset side to make Loans.
(h) Place it in the securities market. Someone has to sell those bonds/stocks and investing in bonds/stocks provides capital to expand somewhere.

The theory argues that any one of the above creates a “multiplier effect”. Just make an assumption that with the $8 million, the WWE hires 40 new wrestlers at $200,000 each. That’s 40 new employees and at a $200,000 Income level, there is an actual 33% income tax attached ot that. Wow… Down to $144,000 already with the Federal Government netting $66,000 in tax revenue. State and Local governments take their bite, too, that could take another 10 to 20% depending on where you live. Oh, property taxes… As you can see, the Tax Revenue adds up. Then, when that wrestler is finally able to buy goods & services, that new WWE employee is generating Sales Tax for his meals, hotels, flights, etc. Remember, we have 40 hires just like that… Thus, you’ve lowered the Corporate Tax Rate from 35% to 21% but you’ve created 40 new tax payers to cover that tax deficit through different tax avenues.

If WWE expands their operations, that means they’ll hire construction crews or machinery to expand. Buying new trucks, rings, lights, barriers, additions onto the Titan Towers, etc. all need to bought somewhere and WWE needs to pay someone to install or haul them. Even if WWE just upgrades their Private Jets with that $8 million, someone has to provide that service and is getting paid something per hour to do it along with the parts. Placing the money in the bank (nice pun), it raises capital for a Bank to make more loans. Those loans, in turn, could to a business to invest in buildings or machinery to boost their own productivity and provide jobs. If you invest in bonds or stocks, the seller of those securities, who needs capital, will receive your investment funds in return and potentially expand.

It’s often referred to by the media and other political pundits as the “trickle down” effect.

The theory suggests that by empowering the Business sector who provide jobs, cut paychecks, provide benefits, and purchase capital equipment, their expansion will generate the higher tax revenue by cutting tax rates. Technically speaking since the 1980s, that has happened… If you look at the Congressional Budget Office’s data or the IRS, tax revenues have surged since Tax Rates were drastically cut from what was seen during the 1970s. Just look at the data.

Now, where this theory becomes controversial and very political is due to 2 specific things:

(1) Federal Government’s deficit spending levels since the 1980s with the juggling act of Social Security, Healthcare, and Military Spending have been increasing significantly. Fighting the Cold War and Desert Storm were expensive but the last 17 years has seen $15 Trillion piled onto $5 Trillion.

(2) Outsourcing. After Nixon went to China during the 1970s to begin economic relations with that country, the United States has opted to utilize various Asian countries for cheaper labor and exchange rate costs for production (along with no benefits paid and lesser environmental regulation). The result? Manufacturing jobs have LEFT the United States and those high paying but no college degree required jobs have not been replaced. Through the 1970s, you could graduate high school and have a nice full time paying job immediately at a factory. Not the case now… Walmart doesn’t pay what a Steel Mill used to straight out of High School.

Both of those facts have caused controversy over cutting taxes. The latter point, in particular, has created significant class warfare talking points because it’s not always clear whether Supply Side Economics “trickles down” to higher wages below… At least not on the surface. Job growth data says otherwise from the 1980s and 1990s and even the 2000s had job growth before the 2007-2009 ate those gains. However, much of the higher paying jobs were aimed at those with college degrees and the other part of the job growth was expansion of food and retail. However, one part missed in this theory is the fact that there’s more Net Income available to invest… Technology sector, in particular, exploded with growth when more income was available due to lower taxes.

If I were a WWE wrestler and witnessed my corporation seeing a significant cut in its Corporate Tax Rate from 35% to 21%, they should ask “WHERE’S MY DAMN MONEY?”. Wrestler payouts are now less since 2014 when the WWE Network took over the Pay Per View market and the same goes for DVD/Blu Ray sales with everything going digital. WWE has made amazing cost savings by reducing their wrestler payouts and repeatedly making money off of older content (always a royalty controversy there).

Or, the WWE Corporation could invest in yet another foolish attempt at starting a Professional Football League, XFL – Part Deux.

Oh, I know what you’re saying, Vince McMahon is going at it alone… Well, if Vince cannot secure a Cable/Satellite deal for this new pro football venture, where would the games air? Sure, they could try the YouTube.com streaming route or something like that, but WWE Network is always a possibility. Maybe that $8 million saved gets invested into expanding bandwidth possibilities for the WWE Network to air LIVE XFL football games? How about that?

If I were in charge, I’d reinvest in the NXT as an independent/international like wrestling promotion that completely differs from the WWE roster and pay certain talent to stay there. That’s just me, bitter about how the WWE killed NXT through early 2017 from being the real brand extension due to the 2016-2017 talent raids. NXT from 2015-2016 was producing some of the best wrestling shows in the country and the WWE threw that all away!

On a personal income level, Vince McMahon will now see a lower Income Tax Rate from upwards of 39% to 37%. If he’s making a flat salary of $1.4 million during 2017, Vince will save almost $30,000… That’s hardly a dent that could fund a pro football league. For the record, I don’t have access to Vince’s bank account and do not know how much he’s willing to unload from his personal savings. As Dave Meltzer recently speculated, maybe Vince sells his portion of the WWE to create this league?

However, according to WWE’s 2016 Proxy Statement, Vince McMahon owns 35,533,375 shares of WWE stock. 2017 started at around $19 per share and may end 2017 at $33. Vince’s wealth, alone from that stock surge, has grown almost $500 million. The WWE Stock earns an annual dividend of $0.48 per share and thus Vince pockets another $17 million on dividends alone! Vince will pay 37% on the dividends like income but since his WWE shares are probably considered “long-term” assets to him, he’s only taxed 20% capital gains on that $500 million. Thus, during 2017, if my math is correct, Vince has $400 million to play with and invest elsewhere.

Those who Pro Football thing could just be Vince McMahon being BORED and wanting to play with the excessive money that he’s earned.

The real question for XFL Part Deux – The Sequel is if the WWE Corporation somehow gets involved… OR if Vince McMahon decides to sell some of his shares to help fund the football league. That’s where lower taxes could provide additional capital for this matter. It all depends on HOW Vince McMahon can televise and/or stream his games. REMEMBER, unlike 2001, the major 4 networks (ABC, FOX, CBS, and NBC) all have a piece of the National Football League (NFL) right now. During 2001, NBC lost their AFC rights to CBS while Viacom had yet to buy CBS to also get into football. That’s why NBC and Viacom were willing to join Vince because they didn’t have access to the NFL. With cord-cutting, it’s difficult to suggest if WWE could get a strong cable deal.

Maybe NBC Sports would be willing to air games on its cable network per an extension of WWE’s contract with Comcast/NBC/Universal? Hard to say if the corporations who own FOX, CBS, ABC, and NBC have any exclusive pro football rights with the NFL that blocks other leagues from being on their channels. NFL is anti-trust excempt so thus that is very likely.

If Vince McMahon is looking to see his portion of the WWE to fund the new football league then the cashing in of stock for a short-term gain could see some benefit from lower tax rates. Hard to say what happens to the WWE stock if Vince cashes in… Probably South.

The bigger impact, though, will be the WWE Corporation seeing a reduction of their top tax rate from 35% to 21%. Since the WWE is a publicly traded company, we should be able to track most of their expense investments from this tax cut. Certainly, wrestlers who feel upset at the lack of Pay Per View payouts and cost savings made from going digital. Will the WWE invest in making their company better or just save the money? Maybe with the added money, they can try a little harder to impress other countries to grow internationally?

We’ll see… The bill needs to pass both houses of Congress and then signed into law by WWE Hall of Famer – President Donald Trump.

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WWE 2K18 on Nintendo Switch – Update

Just updating you with my latest experiences on the WWE 2K18 for the Nintendo Switch.

– No patches yet to fix slowness. I’ve tried the 6 man tag match several times and it is SO SLOW… Michael Cole glitches out badly during these matches as well.

– I had a Fatal 4 Way Ladder match that involved John Cena and Braun Strowman. At one point, John Cena was just standing in a ring full of ladders and doing nothing! Meanwhile on the outside, Strowman was running at the ring apron and wasn’t stopping until I hit him!

– Getting in and out of the ring is a disaster… So slow…

– I really enjoyed seeing Sting 88 and Ric Flair 88 characters which appear to look like their Clash of the Champions #1 versions from 1988, the match that made me become a full blown wrestling fan. No matter how slow it appeared, I had to check that out.

– Only DLC that I bought so far was the $4.99 “Accelorator” to unlock most wrestlers. That was worth it.

– Oddly enough, I’m getting used to the SLOW speed… Now, that doesn’t mean that 2K Sports shouldn’t fix this game. Far from it…. But I came from an era where bad ports were common and during a time when you couldn’t buy many games per year, you just dealt with a game given to you. Case in point, the first Mortal Kombat for the Gameboy. Talk about a SLOW port… Eventually, you figure out the hitboxes and timing and thus you begin to forgive the slowness somewhat. I seem to have more anger about how slow the menus and loading times are in comparison.

– According to my Nintendo Switch, WWE 2K18 takes up 15.3 GB of my MicroSD card and I own the physical version with that. Not bad and that’s 5 GB than the 20 GB that NBA 2K18 takes up. Looking at the Nintendo eShop, it requires 20.3 GB of space if you went 100% digital. That’s tolerable and would be more tolerable if the 2K put in a strong patch.

– Is it worth it? I gave a “D” grade due to the slowness and in my opinion, that remains. A performance patch would have to be implemented by 2K in order for me to recommend buying it on the Nintendo Switch. Everything that I’ve heard suggests that the Playstation 4 and Xbox One versions perform just well. If you have one of those systems, go for it. It feels like the infrastructure of a good game is there and it just needs a speed boost on the Nintendo Switch.

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COMING SOON:

– 2017 Mr. Tito Awards for the Best in Pro Wrestling (or WWE)

– 2018 Predictions Column (also reflecting on my 2017 Predictions)

SO JUST CHILL… ‘TIL THE NEXT EPISODE!

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