Source: USA Today Images.
Just a few weeks ago, the XFL canceled the remainder of its season – five regular-season games and playoffs – due to COVID-19. The XFL promised to pay its players’ salary and benefits for the canceled games, refund ticket holders for the canceled games and displayed a commitment to playing in 2021 and beyond. Additionally, the XFL allowed current contracted players to sign with teams in the NFL and CFL. Houston Roughnecks quarterback P.J. Walker was released from his XFL contract when he signed with the Carolina Panthers.
However, the contractual obligations of the XFL to perform are unclear. What is known is that the XFL will not be able to fulfill its three-year television contracts with ESPN/ABC and Fox Sports/Fox, leases with venues (such as a three-year lease in St. Louis), and possible multi-year contracts to players and coaches.
The league, personally funded by World Wrestling Entertainment Chairman and CEO Vince McMahon, was created in 2018 to fill a void for spring football. The league implemented innovative gameplay rules that allowed player interviews during the game, as well as changing kickoffs to decrease the amount of high-impact contact. The league’s ratings started off well, however, viewership decreased by more than 50% by week five.
The decreases were not only through television ratings but also in Vince McMahon’s wealth. Vince McMahon created Alpha Entertainment LLC in 2017, which allowed him to create the XFL in a company separate from WWE. Additionally, in 2019, Vince McMahon sold 3.2 million shares of WWE stock to fund the XFL. Mr. McMahon raised about $272 million during the sale, with shares costing $84.50 per share. At the time of the trade on March 27, WWE shares were hitting highs of $90 per share. As of April 20, 2020, the price of a share sits at $37.42. Even though WWE and XFL are separate entities, the XFL was wholly dependent on the wealth of Vince McMahon, which is centered on his 38.3% equity in WWE. Source: SEC.
The XFL is controlled by two LLCs, XFL LLC and Alpha Entertainment LLC. Even though Alpha Entertainment LLC operates under the name XFL, a separate company XFL LLC is controlled by World Wrestling Entertainment. WWE, in its 2018 first-quarter report, stated that WWE received an equity interest without financial obligation to Alpha Entertainment. The league’s name and preexisting trademarks were transferred to Alpha Entertainment LLC as part of the deal. Thus, it can be assumed that WWE is off the hook for liabilities, and all of them will be placed on Alpha Entertainment LLC. LLCs provide personal liability protection, which makes them attractive to business owners from large to small. Due to the personal protections, Vince McMahon as the owner of Alpha Entertainment will most likely not be personally liable to fulfill the contractual obligations of the XFL, unless he either acted in gross negligence or personally guaranteed the contracts.
UPDATE: Vince McMahon provides a statement to ESPN’s Kevin Seifert.