Pro-Wrestling WWFE Quarterly Report Page Pro-Wrestling WWFE Quarterly Report Page
Last updated 1 April 2000
March 8, 2000
WORLD WRESTLING FEDERATION ENTERTAINMENT INC (WWFE)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are an integrated media and entertainment company principally engaged in the development, production and marketing of television programming, pay-per-view programming, live events and the licensing and sale of branded consumer products featuring our highly successful World Wrestling Federation brand of entertainment.
We have experienced significant growth in many aspects of our business. We believe this growth has been driven by a series of management decisions to reposition our business. Since late 1997, we have intensified our focus on the development and marketing of our television and pay-per-view programming, incorporated some operations in house, expanded our branded merchandising strategy, negotiated more favorable advertising agreements and established a presence on the Internet.
These new business initiatives, combined with our growing audience appeal, have led to increasingly higher television ratings and greater pay-per-view buys, which have heightened demand for our product offerings, including licensed products, home videos and other branded merchandise.
Our operations are organized around two principal activities:
. The creation, marketing and distribution of our live and televised entertainment and pay-per-view programming. Revenues are derived principally from ticket sales to our live events, purchases of our pay-per-view programs, the sale of television advertising time and the receipt of television rights fees.
. The marketing and promotion of our branded merchandise. Revenues are generated from both royalties from the sale by third-party licensees of merchandise and the direct sale by us of merchandise, magazines and home videos.
The consolidated financial statements include the financial statements of our Company, formerly known as Titan Sports Inc., and its four wholly owned subsidiaries and its majority owned subsidiary. Prior to the initial public offering, except for our Canadian operations, we were taxed as a Subchapter S Corporation and we were not subject to federal taxes at the corporate level. As a result of the initial public offering, our Subchapter S Corporation status was terminated, and we are now a Subchapter C Corporation and accordingly, we are subject to federal, state and foreign income taxes.
Recent Developments
XFL
We have recently announced our intention to launch a professional
football league, to be known as the XFL, which is scheduled to begin
its first season in February 2001. We are in the process of
negotiating television deals with broadcast and cable companies. We
are currently building the infrastructure to support this league.
Based on current assumptions we expect the full capitalization of
the venture to be between $75.0 million and $100.0 million.
USA Network Television Distribution Agreements On March 1, 2000 we provided notice of cancellation of our contract with USA Network with respect to four hours of our programming effective September 2000. Our agreement with USA Network with respect to our remaining hour of programming expires in September 2000. We are currently in discussions with USA Network as well as other networks to secure a new distribution agreement for this programming.
Results of Operations
Three Months Ended January 28, 2000 Compared to Three Months Ended January 29,
Net Revenues. Net revenues were $98.4 million in the third quarter of fiscal 2000 as compared to $65.2 million in the third quarter of fiscal 1999, an increase of $33.2 million, or 51%. Of this increase, $19.6 million was attributable to live and televised entertainment and $13.6 million was attributable to branded merchandise.
Live and Televised Entertainment. Net revenues were $65.9 million in the third quarter of fiscal 2000 as compared to $46.3 million in the third quarter of fiscal 1999, an increase of $19.6 million, or 42%. This increase was partially attributable to an increase in our sale of advertising time and sponsorships which increased by $12.1 million in the third quarter of fiscal 2000 as a result of consistently high ratings for our shows and a new contract with the United Paramount Network ("UPN"). This contract provides us with the right to sell a substantial majority of the advertising time in our program, WWF Smackdown!. Revenue from attendance at our live events increased by $5.8 million, of which $3.3 million was due to an increase in attendance and $2.5 million was due to an increase in average ticket prices. Pay-per-view revenues increased by $1.9 million due to an increase in buys from approximately 1.5 million buys in the three months ended January 29, 1999 to approximately 1.6 million buys in the three months ended January 28, 2000.
Branded Merchandise. Net revenues were $32.5 million in the third quarter of fiscal 2000 as compared to $18.9 million in the third quarter of fiscal 1999, an increase of $13.6 million, or 72%. This increase was due primarily to an increase in licensing of $10.2 million, new media of $2.5 million, publishing of $1.0 million and merchandise of $0.7 million. This increase was offset partially by a decrease in home video revenues of $1.0 million. The increase in licensing resulted from the continued success of WWF branded toys by JAKKS Pacific, Inc., the launch of Wrestlemania 2000 for Nintendo 64 by JAKKS Pacific, Inc. and THQ, Inc., and the debut of WWF The Music Volume IV. The increase in new media merchandise and advertising revenues reflects the increased traffic on our Internet web sites. The increase in publishing revenues was due to the increased circulation of our two monthly magazines from approximately 1.3 million units in the third quarter of fiscal 1999 to approximately 1.8 million units in the third quarter of fiscal 2000. The increase in merchandise revenues was due to increased attendance at our live events. The decrease in home video was due to a decrease of 0.2 million units sold.
Cost of Revenues. Cost of revenues was $56.7 million in the third quarter of fiscal 2000 as compared to $37.3 million in the third quarter of fiscal 1999, an increase of $19.4 million, or 52%. Gross profit as a percentage of revenues decreased to 42% in the third quarter of fiscal 2000 from 43% in the third quarter of fiscal 1999.
Live and Televised Entertainment. The cost of revenues to create and distribute our live and televised entertainment was $38.9 million in the third quarter of fiscal 2000 as compared to $26.1 million in the third quarter of fiscal 1999, an increase of $12.8 million, or 49%. Of the $12.8 million increase in cost of revenues, $7.7 million was related to the minimum guarantees associated with our new contract with UPN, fees paid to our performers which are directly related to our increased revenues and scheduled increases in the minimum guarantees associated with our USA contract. Of the remaining increase of $4.1 million, $2.2 million was due to an increase in television production costs, due in part to our new UPN program, WWF SmackDown!, and $1.8 million was due to an increase in arena rental charges which are directly related to the increased revenues. Gross profit as a percentage of net revenues decreased to 41% in the third quarter of fiscal 2000 from 44% in the third quarter of fiscal 1999. The decrease in gross profit as a percentage of net revenues was due primarily to increased television and pay-per-view production costs, which includes fees paid to our performers.
Branded Merchandise. The cost of revenues of our branded merchandise was $17.8 million in the third quarter of fiscal 2000 as compared to $11.2 million in the third quarter of fiscal 1999, an increase of $6.6 million, or 58%. Of the $6.6 million increase, $4.8 million was related to our licensing activities, $0.8 million was related to our merchandise activities and $0.7 million was related to our publishing activities, substantially all of which were related to increased revenues in these areas. The increase in licensing cost of revenues also includes $1.1 million related to our investment in the National Hot Rod Association. Gross profit as a percentage of net revenues increased to 45% in the third quarter of fiscal 2000 from 41% in the third quarter of fiscal 1999. Licensing revenues increased by $10.2 million, which favorably impacted our overall gross profit percentage of our branded merchandise activities.
Selling, General, and Administrative Expenses. Selling, general and administrative expenses, which include corporate overhead expenses, were $17.7 million in the third quarter of fiscal 2000 as compared to $10.2 million in the third quarter of fiscal 1999, an increase of $7.5 million, or 74%. Of this increase, $2.7 million was due to an increase in staff related expenses. The number of full-time personnel as of January 28, 2000 was 322 as compared to 255 as of January 29, 1999, an increase of 67 employees. The increase in personnel was related to the expansion of our business. In addition, the Chairman and the Chief Executive Officer were paid in accordance with the terms of their employment contracts, which became effective prior to the closing of the initial public offering. Of the remaining $4.8 million increase, $1.6 million related to increased advertising and promotion costs and $0.9 million related to increased professional and consulting fees. Selling, general and administrative expenses as a percentage of net revenues was 18% in the third quarter of fiscal 2000 as compared to 16% in the third quarter of fiscal 1999 due to our planned investment in management and staffing.
Depreciation and Amortization. Depreciation and amortization expense was $0.7 million in the third quarter of fiscal 2000 as compared to $0.5 million in the third quarter of fiscal 1999, an increase of $0.2 million. The increase of $0.2 million reflects the increased spending on capital projects.
Interest Expense. Interest expense was $0.7 million in the third quarter of fiscal 2000 as compared to $0.3 million in the third quarter of fiscal 1999. The increase of $0.4 million was due to interest related to the $32.0 million note issued to our then sole stockholder on June 29, 1999 for estimated federal and state income taxes payable by our then sole stockholder. The note is unsecured, bears interest at 5%, and is payable by April 10, 2000. As of January 28, 2000, we paid approximately $5.7 million against this note, which represented the prescribed estimated income tax payments required by the Internal Revenue Service. See the Provision for Income Taxes below for further information.
Interest Income and Other Income, Net. Interest income and other income, net was $3.2 million in the third quarter of fiscal 2000 as compared to $0.7 million in the third quarter of fiscal 1999. This increase of $2.5 million represents interest earned on our significantly higher cash balances.
Provision for Income Taxes. Prior to the initial public offering, we were taxed as a Subchapter S Corporation and therefore, we had to provide for only certain state and foreign income taxes. The liability for federal and the remaining state income taxes was the responsibility of our then sole stockholder. Concurrent with our initial public offering, our tax status was changed from a Subchapter S Corporation to a Subchapter C Corporation. As a Subchapter C Corporation, we are directly responsible for all federal and state income taxes. As a result of the change in our tax status, for the year ending April 30, 2000, we will be taxed on our income at an effective rate of approximately 22% based upon the number of days during the fiscal year that we were a Subchapter S Corporation and the number of days we were a Subchapter C Corporation. As a consequence to this change, our provision for income taxes substantially increased to $5.7 million in the third quarter of fiscal 2000 as compared to $0.6 million in the third quarter of fiscal 1999.
Nine months Ended January 28, 2000 Compared to Nine months Ended January 29,
Net Revenues. Net revenues were $262.9 million in the nine months ended January 28, 2000 as compared to $157.7 million in the nine months ended January 29, 1999, an increase of $105.2 million, or 67%. Of this increase, $68.7 million was attributable to live and televised entertainment, and $36.5 million was attributable to branded merchandise.
Live and Televised Entertainment. Net revenues were $178.2 million in the nine months ended January 28, 2000 as compared to $109.5 million in the nine months ended January 29, 1999, an increase of $68.7 million, or 63%. This increase was partially attributable to an increase of $34.9 million in our sale of advertising time and sponsorships in the first nine months of fiscal 2000 as a result of consistently high ratings for our shows and new contracts with the USA Network and UPN. These contracts provide us with the right to sell a substantial majority of the advertising time in our programs. Pay-per-view revenues increased by $14.6 million, which resulted primarily from an increase in pay-per-view buys from approximately 3.6 million in the nine months of fiscal 1999 to approximately 4.3 million in the nine months of fiscal 2000, or 19%. As it regularly takes our distributor one year to completely finalize the number of buys for each pay-per-view program, included in the 4.3 million buys for the nine months of fiscal 2000 were 0.6 million buys related to pay-per-view events in fiscal 1999. Revenue from attendance at our live events increased by $17.0 million, of which $10.0 million resulted from an increase in average ticket prices and $7.0 million resulted from an increase in attendance for the nine months ended January 28, 2000 as compared to the corresponding period in the prior fiscal year.
Branded Merchandise. Net revenues were $84.7 million in the nine months ended January 28, 2000 as compared to $48.2 million in the nine months ended January 29, 1999, an increase of $36.5 million, or 76%. This increase was primarily due to an increase in licensing revenues of $22.4 million, new media revenues of $5.3 million, home video revenues of $4.4 million and publishing revenues of $4.0 million. The increase in licensing resulted from the continued success of WWF branded toys by JAKKS Pacific, Inc., the launch of Wrestlemania 2000 for Nintendo 64 by JAKKS Pacific Inc. and THQ, Inc. and the debut of WWF The Music Volume IV. Additionally, we increased the number of licensees in an effort to broaden our product offerings. The increase in new media revenues of $5.3 million reflects the increased traffic on our Internet web sites. The increase in home video revenues resulted from the expansion of our video catalog and a significant increase in our customer base during the first quarter of fiscal 2000. The increase in publishing revenues was due to the increased circulation of our two monthly magazines from approximately 3.9 million in the nine months of fiscal 1999 to approximately 5.2 million in the nine months of fiscal 2000.
Cost of Revenues. Cost of revenues was $149.8 million in the nine months ended January 28, 2000 as compared to $93.3 million in the nine months ended January 29, 1999, an increase of $56.5 million, or 61%. Gross profit as a percentage of revenues increased to 43% in the nine months ended January 28, 2000 from 41% in the nine months ended January 29, 1999.
Live and Televised Entertainment. The cost of revenues to create and distribute our live and televised entertainment was $104.7 million in the nine months ended January 28, 2000 as compared to $64.1 million in the nine months ended January 29, 1999, an increase of $40.6 million, or 63%. Of the $40.6 million increase in cost of revenues, $22.8 million related to the minimum guarantees associated with our new contracts with the USA Network and UPN, fees paid to guest celebrities and fees paid to our performers which are directly related to our increased revenues. Of the remaining increase of $17.8 million, $5.2 million was due to an increase in television production costs, due in part to our new UPN program, WWF SmackDown!, $4.3 million was due to an increase in arena rental charges, which are directly related to the increased revenues, and $1.8 million was due to an increase in pay per view and live event advertising costs. Gross profit as a percentage of net revenues was 41% for both nine month periods.
Branded Merchandise. The cost of revenues of our branded merchandise was $45.1 million in the nine months ended January 28, 2000 as compared to $29.2 million in the nine months ended January 29,
1999, an increase of $15.9 million, or 54%. Of the $15.9 million increase, $10.2 million was related to licensing, $2.4 million related to home video, $2.0 million related to publishing, and $1.6 million related to new media, substantially all of which was related to increased revenues in these areas. The increase in licensing costs of revenues also includes $1.9 million related to our investment in the National Hot Rod Association. Gross profit as a percentage of net revenues increased to 47% for the nine months of fiscal 2000 from 39% in the nine months of fiscal 1999. Licensing revenues increased by $22.4 million, which favorably impacted our overall gross profit percentage of our branded merchandise activities.
Selling, General, and Administrative Expenses. Selling, general and administrative expenses, which include corporate overhead expenses, were $46.3 million in the nine months ended January 28, 2000 as compared to $27.8 million in the nine months ended January 29, 1999 an increase of $18.5 million, or 67%. Of this increase, $8.8 million was due to an increase in staff related expenses. The number of full-time personnel as of January 28, 2000 was 322 as compared to 255 as of January 29, 1999, an increase of 67 employees. The increase in personnel was related to the expansion of our business. In addition, the Chairman and the Chief Executive Officer were paid in accordance with the terms of their employment contracts, which became effective prior to the closing of the initial public offering. Of the remaining $9.7 million increase, $2.4 million related to increased advertising and promotion costs and $1.9 million related to increased professional and consulting fees. Selling, general and administrative expenses as a percentage of net revenues was 18% in both the nine months ended January 28, 2000 and January 29, 1999.
Depreciation and Amortization. Depreciation and amortization expense was $1.8 million in the nine months ended January 28, 2000 as compared to $1.4 million in the nine months ended January 29, 1999 an increase of $0.4 million. The increase of $0.4 million reflects the increased spending on capital projects.
Performer Stock Options. In accordance with the provisions set forth in the Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," we recorded a second quarter fiscal 2000 non-cash charge of approximately $6.0 million relating to the granting of stock options to certain performers who are independent contractors. The options, which vest over three years, were granted in conjunction with our October 19, 1999 initial public offering.
Interest Expense. Interest expense was $1.8 million in the nine months ended January 28, 2000 as compared to $0.8 million in the nine months ended January 29, 1999. The increase of $1.0 million was due to interest related to the $32.0 million note issued to our then sole stockholder on June 29, 1999 for estimated federal and state income taxes payable by our then sole stockholder. The note is unsecured, bears interest at 5% and is payable by April 10, 2000. As of January 28, 2000, we paid $5.6 million against this note, which represented the prescribed estimated income tax payments required by the Internal Revenue Service. See Provision for Income Taxes below for further information.
Interest Income and Other Income, Net. Interest income and other income, net was $4.9 million in the nine months ended January 28, 2000 as compared to $1.2 million in the nine months ended January 29, 1999. The increase of $3.7 million was due primarily to interest earned on our significantly higher cash balances.
Provision for Income Taxes. Prior to the initial public offering, we were taxed as a Subchapter S Corporation and therefore, we had to provide for only certain state and foreign income taxes. The liability for federal and the remaining state income taxes was the responsibility of our then sole stockholder. Concurrent with our initial public offering, our tax status was changed from a Subchapter S Corporation to a Subchapter C Corporation. As a Subchapter C Corporation, we are directly responsible for all federal and state income taxes. As a consequence to our tax status change, the provision for income taxes substantially increased to $13.7 million in the first nine months of fiscal 2000 as compared to $1.2 million in the first nine months of fiscal 1999. The $13.7 million represents an effective tax rate of 22% for the nine months
ended January 28, 2000 which includes all adjustments necessary to reflect the conversion of a Subchapter S Corporation status to a Subchapter C Corporation status upon the initial public offering. We expect our effective tax rate to be approximately 22% for fiscal 2000.
Liquidity and Capital Resources
Cash flows from operating activities increased during the nine months ended January 28, 2000 to $60.0 million as compared to $30.9 million during the nine months ended January 29, 1999. This improvement was primarily due to an increase in operating income. Working capital, consisting of current assets less current liabilities, was $215.8 million as of January 28, 2000 as compared to $52.7 million as of April 30, 1999.
Cash flows used in investing activities were primarily for capital expenditures, which were $8.9 million in the nine months ended January 28, 2000 as compared to $13.6 million during the nine months ended January 29, 1999. In August 1998, we acquired a 193-room hotel and casino facility in Las Vegas, Nevada in a joint venture partnership totaling $10.8 million. The joint venture partner's ownership in this property is reflected in the cash flow statement as a source of cash under other financing activities. Management has made a decision to sell the property and is currently soliciting offers. This property is classified on the consolidated balance sheet as an asset held for sale. Capital expenditures for the year are expected to be $16.4 million, and include the expansion and renovation of our television and production facility. Our cash balance as of February 29, 2000 was $242.8 million of which, $169.5 million is invested in various corporate commercial papers with a 7-14 day average maturity ranging from 4.76% to 5.76% and $50.8 million is invested in a prime money market fund currently earning interest of 5.26%.
Cash flows provided by financing activities were $145.8 million in the nine months ended January 28, 2000 as compared to $2.3 million during the nine months ended January 29, 1999. In connection with the initial public offering, we received net proceeds after deducting commissions and fees and expenses, of $179.3 million for the sale of 11,500,000 shares of Class A common stock at an offering price of $17.00 per share. We made Subchapter S Corporation distributions to our then sole stockholder totaling $27.1 million in the nine months of fiscal 2000 as compared to $2.8 million in the nine months of fiscal 1999. The increase in S distributions was due to the distribution made to our then sole stockholder on June 29, 1999, of cash in the amount of $25.5 million out of our earned and undistributed earnings, which have been fully taxed at the stockholder level. In addition, we issued an unsecured, 5% interest-bearing note due by April 10, 2000 in an amount equal to the estimated income taxes payable by our then sole stockholder in respect of income taxes for the fiscal year ended April 30, 1999 estimated to be $22.0 million and for the allocated portion of our taxable S Corporation earnings for fiscal 2000 that will be taxed as a Subchapter S Corporation which at the time of the issuance of this note was estimated to be $10.0 million. To the extent the allocated portion of our fiscal 2000 taxable earnings exceeds those earnings used in the calculation of estimated income taxes payable by our then sole stockholder, we have agreed to make an additional distribution to the stockholders of record as of October 18, 1999 payable no later than August 15, 2000. This distribution will represent any additional taxes payable by our then sole stockholder in excess of the original $32.0 million estimate due to increased taxable earnings. As of January 28, 2000, we have estimated such distribution to be $4.0 million and have included this amount as a due to stockholder in the consolidated balance sheet. This amount may vary depending upon our actual taxable income for the fiscal year ending April 30, 2000. As of February 29, 2000 we paid $5.6 million against this note, which represented the prescribed estimated income tax payments required by the Internal Revenue Service.
We have recently announced our intention to launch a professional football league, to be known as the XFL, which is scheduled to begin its first season in February 2001. We are in the process of negotiating television deals with broadcast and cable companies. We are currently building the infrastructure to support this league. Based on current assumptions we expect the full capitalization to be between $75.0 million and $100.0 million. We believe that the capitalization of this venture will come from existing cash balances on hand.
On December 12, 1997, we entered into a mortgage loan agreement with GMAC Commercial Mortgage Corp., which was subsequently assigned to Citicorp Real Estate, Inc., under which we borrowed $12.0 million at an annual interest rate of 7.6% to be repaid in monthly installments over 15 years. This term loan is collateralized by our executive offices and production studio, both of which are located in Stamford, Connecticut. Additional collateral includes leases, agreements and other items relating to our mortgaged property and its operations. The term loan may not be prepaid in whole or in part prior to and through December 31, 2005. Thereafter, the term loan may be prepaid in whole with the payment of a premium. As of February 29, 2000, the outstanding principal amount of the term loan was $11.1 million.
On December 22, 1997, we entered into a $10.0 million revolving credit agreement with IBJ Schroder Business Credit Corporation that expires on December 21, 2000. Interest on outstanding amounts are calculated at the alternate base rate plus 0.5%, or at the Eurodollar rate plus 2.5%, based upon the availability of qualifying receivables which collateralize the loan. In addition to qualifying receivables, this revolving credit agreement is collateralized by our general intangible property, excluding intellectual property. As of February 29, 2000, no amounts were outstanding under the revolving portion of this credit agreement.
We have entered into various contracts under the terms of which we are required to make guaranteed payments, including:
. Performance contracts with all of our performers, some of which provide for future minimum guaranteed payments.
. Television distribution agreements with the USA Network that provide for the payment of the greater of a fixed percentage of the revenues from the sale of television advertising time or an annual minimum payment. An agreement with respect to one hour of programming expires in September 2000, and the other agreement with this network, which covers four hours of programming, expires in September 2001 but may be terminated earlier by either party. In addition, we entered into a one year agreement with the UPN expiring in September 2000, which covers two hours of programming every week and which also provides for a minimum performance payment by us.
. Various operating leases related to our sales offices and warehouse space.
. Employment contracts with Vincent K. McMahon and Linda E. McMahon, the terms of which are for a period of seven and four years, respectively.
. Employment contracts with some of our employees, the terms of which are generally for a period of two to three years.
For fiscal 2000, our aggregate minimum payment obligations under these contracts are expected to be $44.0 million. We anticipate that all of these obligations will be satisfied out of cash flows from operating activities.
We believe that our existing cash balance on hand, together with cash generated from operations, and amounts available under the revolving credit agreement are sufficient to meet our working capital, capital expenditure and cash needs for our strategic investments, including the XFL, over the next twelve months. However, during such period or thereafter, depending on the size and number of the projects and investments related to our growth strategy, we may require the issuance of debt and/or additional equity securities.
Year 2000 Readiness Disclosure
We are year 2000 compliant. The year 2000 did not pose any operational problems for our computer and television production systems.
As of February 29, 2000 we had spent less than $100,000 on our year 2000 compliance. Such amounts included normal system upgrades and replacements. Costs specifically associated with modifying our systems for year 2000 compliance have been expensed as incurred.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain statements that are forward-looking and are not based on historical facts. When used in this Quarterly report on Form 10-Q, the words "may," "will," "could," "anticipate," "plan," "continue," "project," "intend", "estimate", "believe", "expect" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These statements relate to our future plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or the performance by us to be materially different from future results or performance expensed or implied by such forward-looking statements. The factors discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations" could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q and in oral statements made by our authorized officers. In addition the following factors, among others, could cause our financial performance to differ materially from that expressed in any forward-looking statements made by us, or on our behalf: (i) our failure to continue to develop creative and entertaining programs and events would likely lead to a decline in the popularity of our brand entertainment, (ii) our failure to retain or continue to recruit key performers could lead to a decline in the appeal of our story lines and the popularity of our brand of entertainment, (iii) the loss of the creative services of Vincent McMahon could adversely affect our ability to create popular characters and story lines, (iv) our failure to maintain or renew key agreements could adversely affect our ability to distribute our television and pay-per-view programming, (v) we may not be able to compete effectively, especially against competitors with greater financial resources or marketplace presence, (vi) our ability to protect the intellectual property rights in which we depend upon could negatively impact our ability to compete in the sports entertainment market, (vii) a decline in the general economic conditions or in the popularity of our brand of sports entertainment could adversely impact our business, (viii) our insurance may not be adequate to cover liabilities resulting from accidents or injuries, (ix) we may be prohibited from promoting and conducting our live events if we do not comply with applicable regulations, (x) we could incur substantial liabilities if pending material litigation is resolved unfavorably, (xi) the failure of our new complimentary businesses, including the professional football league to be known as the XFL, could adversely effect our existing businesses, (xii) our management has broad discretion over the use of proceeds from the offering , and therefore investors will not have the opportunity to evaluate information concerning the application of proceeds, (xiii) through his beneficial ownership of a substantial majority of our Class B common stock, our controlling stockholder can exercise significant influence over our affairs, and his interests may conflict with the holders of our Class A common stock, (xiv) a substantial number of shares will be eligible for future sale by our current stockholder, and the sale of those shares could lower our stock price, and (xv) there has been no prior market for our Class A common stock, and the market price of the shares will fluctuate, (xvi) our operations may suffer temporary disruptions from year 2000 computer problems resulting in increased expenses, decreased revenues or earnings. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and undue reliance should not be placed on these statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have not included the information required related to market risk because it is not material to us.