Guest Editorial: Zenk says AOL/Time Warner should pull out of deal 

by Tom Zenk

AOL-TIME WARNER SHOULD HOLD ON TO WCW 
Guest Editorial - Tom Zenk 

I was pleased to hear rumors that the WCW sale may be under reconsideration by Time Warner. 

That's because a lot of unanswered questions about the sale will likely reveal themselves as Time Warner pursues internal due diligence. Primary among these is the knockdown sale price of the company. 

When WCW was under offer to SFX in May 2000, it was valued at $600 million. Current reports indicate that, just 9 months later, the company has been sold for an amount ranging between $15 - 80 million. This represents an extraordinary half billion loss in value for Time Warner shareholders that can't simply be justified by the company's current loss making situation. (Half a billion could equally sustain the company and its current $80 million losses a year for six more years). 

On top of that there's the matter of possible future revenue streams forgone by AOL-Time Warner in divesting itself of WCW right away. Consider that the AOL-Time Warner merger provides WCW with access to a phenomenal additional distribution platform that's available to NONE of AOL-Time Warner's rivals. In fact,WWF would kill for the sort of direct online access to over 25 million AOL subscribers that WCW potentially enjoys as part of the merged AOL-Time Warner. In the right hands, WCW could be generating 'content' directly targeted at the 12-24 demographic that's expected to spearhead AOL's move into high speed broadband internet entertainment. AOL-Time Warner has to be crazy to throw away that sort of business - especially at a firesale price. The financial analyses undertaken for internal due diligence must surely highlight the future benefits of retaining WCW within AOL-Time Warner's stable - and using it aggressively to develop the new distribution capability offered by the merger. 

Equally, there's no guarantee, in the current economic situation, that Fusient can come up with the levels of investment needed to regrow WCW. 

'Incubator' companies like Fusient, typically limit their stake in a company to around 25 percent , and unless Fusient's investment in WCW is atypically higher, Fusient is likely to remain a minority investor. 

Fusient itself has first round start up capital for ALL its ventures of only $30 million, and with plans to invest in 15 to 20 start-up companies a year, that suggests a typical Fusient investment of around $1 - 2 million per company. In addition to its investment in WCW, Fusient is also currently investing in Gamesville.com, Broadband Sports, Akamai, and Tunes.com. My guess is that Fusient's total direct investment would be unlikely to sustain even a few months operating losses for WCW. That means they desperately need big investors with deep pockets, especially if they're going head to head with Vince McMahon. 

Time Warner says they'll retain a minority interest in the new venture plus programming rights for a fixed period plus a share of advertising revenues. Additionally the new WCW President Eric Bischoff has acknowledged an unspecified personal investment in the Fusient led bid. The question is - where are the deep pocket investors coming from in an already recessionary climate - The Allen Group and Warburg Pincus have been mentioned - and how long are they prepared to carry WCW's losses - particularly faced with an impending down cycle in wrestling. 

WCW's real advantage over WWF is locational - that is, their current position within a company that has merged content production with a massive existing and fast growing distribution platform. The main reason WCW is not making money is the consistent MISmanagement of the company's content and talent. Based on the evidence of the past few weeks that is unlikely to change under the new regime. Look instead for the content to decline further as the talent find their contracts under negotiation downwards. Look out for even bigger problems if the 'Friends of Bischoff' retain their favored contract status. And finally look out for even bigger problems if they don't! 

With proper management, wrestling CAN be a profitable business - as WWF's $450 million annual earnings show. WCW needn't be the lame duck and cushy millionaires club that it became under Turner. It could be lean, mean, at the cutting edge of both cable and online streaming entertainment. AOL-Time Warner should be holding on to WCW and rebuilding it - not giving it away in a firesale. Hopefully, finally , their delayed due diligence procedures are going to tell them so.