By Bethany McLean

(FORTUNE Magazine) – The 20,000 fans packing the Raleigh Durham Sports Arena are all on their feet. It's late August, it's SummerSlam--one of the World Wrestling Federation's biggest events--and Shane McMahon is scaling the scaffolding that surrounds the stage. Shane, a husky, dark-haired guy in street clothes, plays Shane-O Mac, a spoiled son with a reputation for dirty dealing. He's trying to escape his foe, Steve Blackman, a.k.a. the Lethal Weapon, and win the Hard Core Championship. When he reaches the top, he launches himself off, plummeting 50 feet to the floor. As the crowd roars, Shane is carried backstage on a stretcher.

Says Linda McMahon, Shane's mother and the WWF's CEO: "My heart was in my throat. I couldn't breathe until the referee told me he was fine." Says Vince, Shane's father and the WWF's chairman: "I couldn't very well say no to Shane because he stole that stunt from me." Says Shane, the WWF's slightly bruised head of new media: "I thought it would be something good for the company." Says Shane's sister, Stephanie, who also works for the WWF, in sales: "I knew he was going to jump, and this time I honestly prayed to God."

This probably doesn't sound like a functional family, much less like any corporation you've ever heard of. Welcome to the World Wrestling Federation, created by, directed by, and starring the McMahon family, plus a cadre of larger-than-life characters known as the WWF Superstars. It's a world that's surreal enough to out-Dali Dali, where the line between what's real and what's staged blurs beyond recognition, where edgy pop culture collides with the old-time traveling circus, and where pushing the limits--critics would say smashing the limits--of taste, ethics, and morality in the name of entertainment is simply good business.

Pro wrestling and the mania surrounding its theatrics aren't exactly new, but this year the WWF broke all records. In fact, ignoring the WWF is becoming impossible. Consider this: There are some 50 million rabid fans worldwide who have made its flagship program, Raw Is War, the No. 1 regularly scheduled cable TV show--even among young women. Among 12- to 24-year-old men, it topped Monday Night Football in the ratings last season. More people pack the WWF's live shows than attend the average music concert; Wrestlemania 2000, the WWF's premier event, was the highest-grossing nonboxing pay-per-view program of all time. The WWF's Website gets more viewers than either the NFL or NBA sites do. Books by two WWF stars, Dwayne Johnson, a.k.a. The Rock (a third-generation wrestler), and Mick Foley, a.k.a. Mankind (whose career cost him part of one ear), both hit No. 1 on the New York Times bestseller list in the past 12 months. (Mankind is currently at work on a children's holiday book called Christmas Chaos.) WWF stars like Chyna, who is on the cover of November's Playboy, have been catapulted to celebrity status. The WWF even performs civic deeds: More than 100,000 people have registered to vote for President through Marty, a 19-year-old wrestling addict who traveled from California to attend SummerSlam, puts it best: "Those who understand don't need an explanation. Those who need an explanation will never understand."

Perhaps the most surreal fact of all is that the WWF is a publicly traded company with a market value of over $1 billion. Revenues have soared from $82 million three years ago to $379 million this fiscal year, which ended April 30; profits for the same period hit $59 million. Such numbers are drawing a new type of fan. "I think it's a totally spectacular business, one of the best consumer businesses I've ever seen," says Larry Haverty, an analyst at State Street, a major WWF shareholder. Viacom, which just won a five-month legal battle with USA Networks over the rights to some WWF programming, owns 3% of the stock, as does NBC, a unit of GE.

Realizing the WWF has "heat" (wrestling-speak for crowd adulation), the McMahons are expanding the business beyond the ring. Last winter they announced that the WWF would launch a new professional football league, called the XFL. In the spring, NBC stepped forward as a partner in the venture; the first game will air in February 2001. The family believes that today's WWF is just the beginning of a sports entertainment empire that will some day rival Disney. (Think anti-Disney.) Like it or not, the WWF is growing fast and inflicting pain on its biggest rival, Ted Turner's World Championship Wrestling. Today the WCW is rumored to be flat on its back, gasping for air--and it's Vince McMahon's foot on the WCW's chest.

Yet there are naysayers who are having trouble suspending their disbelief. That's clear from watching the WWF's stock. It went public a year ago at $17, promptly plunged nearly 40%, and now trades near its IPO price. To its critics, the WWF is a joke, a fad that has to end, something anyone could replicate. "All it takes is imagination and a good sewing kit," says Jerome Heppelmann, a portfolio manager at Pilgrim Baxter. In late September, the WWF said that its revenues would be less than Wall Street expected, mainly due to a slow-down of merchandise sales at a licensee. The WWF says the blip is temporary; others see it as a sign that the craze has peaked. To convince its doubters that this act is for real, the WWF will have to prove that wrestling's wild success is not the ephemeral result of catering to the lowest common denominator but rather the product of a unique grasp--for better or for worse--of what people want to see.

It's impossible to separate the WWF from its founder, Vince McMahon, who personally owns 78% of its stock and controls 97% of the voting shares. In the wrestling world, McMahon, a third-generation wrestling promoter, is frequently referred to as "the second coming of P.T. Barnum" and a "creative genius." Even his enemies acknowledge he has a uncanny instinct for what will sell. And he's as aggressive and ambitious as any character in the ring. "We're not afraid of anything" is one of his trademark lines. In an interview with Larry King last year, Hulk Hogan, who made his name with the WWF, described McMahon's business style as "ride the horse until it drops, shoot it, then eat the horse."

One of Vince's most outspoken critics is Bret "Hitman" Hart, a former WWF wrestler who switched to the WCW in 1997 after a nasty falling-out with McMahon over his contract. In May 1999, Bret's brother Owen Hart plunged to his death at a WWF show when the safety harness delivering him into the ring failed. The WWF was cleared of criminal wrongdoing, but a civil case brought by the Hart family is proceeding. "Vince is always several steps ahead of everyone else," acknowledges Bret Hart. "But I don't think he has any loyalty or integrity. He will win at all costs and at any price." (A mediation hearing is scheduled for mid-October; the McMahons say that they expect the case to be settled out of court.)

In his vibrant red-and-black-toned office at WWF headquarters in Stamford, Conn., McMahon, 55, looks like a slick character in an open-necked black shirt, his graying hair swept up in a pompadour. One on one, he displays little of his public bravado. He admits that he operates on instinct. "All of a sudden something goes off--I'm not eloquent enough to explain it," he says. His intensity, however--even after 20 years in the business--never seems to wane. McMahon, a dyslexic who grew up in a trailer park in North Carolina, still exists on four hours of sleep a night, ten cups of coffee a day, and an obsessive passion for his business. "None of it is work," he says. At the WWF's first shareholder meeting, in mid-September, he rated the company's performance a B. "We have a long way to go," he says.

It's telling that McMahon's character on the show is a feared and despised boss. "The audience chants the worst things you can imagine at Vince," says the WWF's head of marketing, James Byrne. "That's his finest moment."

McMahon wouldn't have come as far as he has without a certain degree of toughness. He sold Sweetheart paper cups and the Encyclopaedia Britannica until he persuaded his reluctant father to let him join the family business in 1971. A decade later, Vince and Linda (who met in a North Carolina church when she was 13, and got married when she was 18 and he was 21) bought the business from Vince's dad and his partners. They agreed to make four quarterly payments of about $250,000 each. If they missed one, the business would revert to the partners, and they'd lose everything. "Everyone wondered where the money was coming from," says Vince. "I wondered too!"

That was just the first of the risks the McMahons took. Until Vince came along, wrestling was broken into regional fiefdoms; "no trespassing" was the unwritten law. McMahon invaded his dad's friends' territories (for which he says he received death threats) by paying local TV stations around the country to broadcast his matches. Within four years, only a handful of other operators remained. "I banked on the fact that they were behind the times, and they were," says McMahon. "All of them." In the mid-'80s, Vince broke another taboo by announcing publicly that wrestling matches were scripted--what a shock!--which he did primarily to escape oversight from state athletic commissions. It worked to his advantage: Fans seemed to appreciate the honest fake more than the pretend real. The business exploded, with wrestlers like Hulk Hogan and Andre the Giant becoming mainstream pop culture figures.

While Vince came up with the big ideas, Linda managed the money and turned his plans into reality. "I counted the cash after the shows and made sure everyone was paid," she recalls. The McMahons also entered the licensing business, thanks to Vince's instincts. Watching 4-year-old Shane play with his GI Joes, Vince decided that wrestlers would make great action figures too. So in 1984 Linda called up Hasbro and found out how licensing worked.

There have also been some nasty, near-fatal spills along the way. In 1993 a federal grand jury indicted McMahon (who acknowledged having used steroids when the muscle-building substances were legal) on charges of possession with intent to distribute steroids and conspiring to defraud the Food and Drug Administration. The first charge was dismissed, and a jury acquitted McMahon of the second. About the same time, Turner's WCW lured away a number of the WWF's stars, including Hulk Hogan, and beefed up its content. By 1997 the WCW was in ascendance, the WWF was losing money--$6.5 million that year--and onlookers were questioning its viability.

But the McMahons aren't quitters. Vince took the WWF in a bold new direction, cranking up the raunch via characters like porn star Val Venis and bad boys D-Generation X (whose tasteful motto is "Suck it"). He also reduced the amount of actual wrestling--less than half of the show today is spent physically sparring--and replaced it with wacky yet somehow compelling story lines. The plots and subplots offer something for everyone: romance, sex, sports, Spandex, comedy, violence. It's all mixed in with a good dose of talk show and produced like a rock concert, complete with pyrotechnics. The result is a weird brew of soap opera, live cartoon, theater of the absurd, even modern-day morality play. Certainly there's nothing else like it in the world. "We don't subscribe to the Hollywood formulaic ways of doing things," says Vince.

The storytelling enables wrestling to tap into more complicated emotions than the caveman-like thrill of seeing someone hit over the head with a chair. And like the wrestling itself, the plots blur the lines between real and staged. One Oedipal story featured Shane and Stephanie McMahon trying to wrest control of the company from their evil father. In another, Vince tries to force the rebellious "Stone Cold" Steve Austin to conform to the corporate rules. Stone Cold can pile-drive Vince, not acceptable at most companies. "I'm of the people," says Vince, who also uses his show for personal vendettas--such as getting even with Ted Turner by creating the hayseed character "Billionaire Ted." Says Eric Thomas, a 29-year-old computer expert at BankOne who has a lifesize cardboard cutout of Austin in his cubicle: "They make a lot of statements that, if you're in the know, you appreciate."

Billionaire Ted has disappeared from the show, probably because Vince has taken his revenge in a more fulfilling way. Every week for nearly two years, the WWF has beaten the WCW in the ratings. Last fall the WCW hired away two of the WWF's top writers in an effort to revive its ratings, which have nonetheless stayed flat. Says Dave Meltzer, editor of the Wrestling Observer Newsletter: "You can't beat Vince at his own game. No one can." Meltzer says that the WCW is expected to lose some $70 million this year; Vince says it's for sale. WCW spokesman Alan Sharp declined to comment.

The WWF's sleek $15 million headquarters exudes an air of corporate success--with a few distinctive touches. The lobby features a soaring ceiling, a marble floor, and a life-sized portrait of Triple H, a six-foot-four, 246-pound bad guy. Framed wrestling posters line the hallways, and on the first floor there's an 8,000-square-foot, state-of-the-art gym. In Linda's hot-pink office, there's a photo of a preteen Shane putting his little sister in a chokehold. Shane started picking up trash after shows at age 10, and now, at 30, he heads, the third-largest streaming-media site, after Microsoft and RealNetworks. His wife, Marissa, is the WWF's publicity director. Stephanie, 24, who started working at the company as a receptionist when she was 12, is finishing up a stint in sales and joining the creative writing team. "This business is my heart and soul and passion, and it always has been," she says. The family's devotion is a key element of the WWF. "If they are out there giving 110%, it's a lot easier to get it from everyone else," says wrestler Steve Blackman.

Working for the WWF is grueling--for the McMahons, the talent, and the crew. The organization puts on some 200 live shows a year, which means that every week, from Saturday or Sunday to Wednesday, Shane, Stephanie, Vince, and the rest of the stars are on the road, accompanied by 85 stagehands and 120 crew members. Raw Is War is filmed live every Monday night. The show ends around 11 P.M., at which time the crew packs up a dozen 18-wheelers and drives hundreds of miles to the Tuesday location. That night's performance is edited into the WWF's other major TV show, Smackdown!, back at the company's production facility in Stamford, then shipped to UPN, which airs it Thursday night. Add pay-per-views and unfilmed performances, and the tally rises to an average of four live shows a week. There are no reruns, which means no off weeks.

Without the WWF's live shows, the rest of the business wouldn't exist. Attendance at live events more than doubled, from 1997's 1.1 million to 2.5 million last year, and the shows almost always sell out. But stats can't capture the hysteria that leads people to sleep outside New York City's Madison Square Garden on a rainy Saturday in September to score tickets for the next show. As Stuart Snyder, who recently joined the WWF as chief operating officer from Feld Entertainment, says, "It's one thing to hear about us selling out the arena. It's another thing to see us blow the roof off."

At SummerSlam, the crowd--a mixture of families with children, women, and packs of men--is on its feet screaming throughout the show, which lasts three hours. Most people are wearing WWF merchandise, and Stone Cold fans who have shaved their heads to more closely resemble their idol pepper the stands. The auditorium is alive with handmade signs: "Rock for President!" and "I divorced my wife for Chyna!" It's the same in Louisiana's Cajun Dome, Chicago's Allstate Arena, or New York's Madison Square Garden. "We are national in appeal but grassroots in execution," says Linda.

Its live performances give the WWF a big advantage in the entertainment world. If the crowd doesn't like something, they start chanting "Bo-o-oring! Bo-o-oring!"--and the WWF responds to their desires almost instantaneously. Stephanie says the script often isn't set until the day of the show, and that sometimes changes are made mid-show. "We're in contact with the public more than any entertainment company in the world," says Vince.

The wrestlers also say that they couldn't perform without their fans. While the outcomes may be scripted, the stunts are real--and dangerous. Kurt Angle, a WWF star who won a gold medal in wrestling at the 1996 Olympics, says, "I get beat up more now than I did in 'real' wrestling." Devon Hughes is half of the Dudley Boyz team, a camouflage-wearing, tough-talking duo. They usually perform so-called tables-ladders-and-chairs matches (TLC for short). For example, at SummerSlam, Hughes plunged off a 25-foot ladder, through a table, and flat onto his back. "You're up there saying, 'Oh, God, I don't want to do this,' " he says. "The cheering of the crowd is how you do it."

What the live shows don't do is make money. At an average of $30 a pop, ticket sales barely cover the cost of production. But out of the live extravaganza, the WWF squeezes nine hours of original programming, plus content for the Website. It all creates demand for WWF merchandise. "It's really one content being repurposed over and over again," says August Liguori, the WWF's chief financial officer.

The TV programming, in turn, attracts advertising dollars. Because many companies are desperate to reach the demographic that the WWF rules--12- to 34-year-old males--Merrill Lynch analyst Jonathan Goldfarb estimates that the WWF's ad revenues jumped from $12 million in 1998 to $78 million last year. Also, the WWF cuts more than 80% of its own advertising deals, offering advertisers a menu of options, including TV and Internet spots, a blimp at a live show, an outdoor pay-per-view sponsorship, and wrestler endorsements. Chef Boyardee, for example, which sponsored SummerSlam, airs a WWF-produced commercial featuring Jericho, a big, blond crowd favorite.

The most profitable part of the WWF, though, is monthly pay-per-views like Armageddon and Unforgiven, which Goldfarb estimates accounted for $107 million of the company's revenue last year. Since many of the shows are filmed live, the WWF has already covered its production costs with ticket sales, so some 60% of the proceeds are pure profit. This year's Wrestlemania grossed about $35 million--which, in movie box-office terms, the WWF points out, would rank it in the top 30 opening weekends of all time.

Merchandise sales, WWF magazines (with a combined annual circulation of nearly seven million), and, believe it or not, WWF music contributed another $114 million. These days on Billboard's Top Ten list, along with the usual suspects like Mariah Carey and Britney Spears, you might see an unfamiliar name: Jim Johnston. Johnston, a self-taught musician, writes the tracks, performs, and produces all the WWF's music. Two of his albums consisting of the wrestlers' entrance music have gone platinum. Now the WWF is in the process of starting its own label, Smackdown Records. "Our fans are really hungry for our products," says Shane.

For all the WWF-hungry fans, there are plenty who see it as a symbol of everything wrong with contemporary culture. Phil Mushnick of the New York Post accuses the McMahons of "selling violence, homophobia, misogyny, twisted sex, negative ethnic stereotyping, and senseless hate to American children." Another conservative group, the Los Angeles-based Parents' Television Council, helped persuade blue-chip companies like Coke, AT&T, and MCI, as well as the U.S. Army, to pull their ads from Smackdown!. L. Brent Bozell, the PTC's chairman, calls the McMahons "despicable people" who "make Larry Flynt look honorable" and says, "We have a few surprises coming."

McMahon says he isn't worried. "L. Brent Bozell," laughs Vince. "There's a name--it sounds like something Vince McMahon would come up with." True to form, Vince has taken criticism like Bozell's and made it part of the show. To the ear-splitting sound of a police siren, a buttoned-up group called "Right to Censor" marches out. They announce that they won't rest until they have cleansed the WWF of its objectionable content. The sirens are almost drowned out by the crowd's booing--and by its cheers when Right to Censor gets pummeled by Rikishi, an enormous man wearing a leather thong.

The PTC is clearly having an effect, but so far Vince has been able to poke fun at his critics. Jon Goldfarb, an analyst at Merrill Lynch, says the WWF now has more than 50 major advertisers, including Nestle, Burger King, and Nintendo, up from just ten in 1996. Nor are the cable networks disturbed. Says Adam Ware, chief operating officer at UPN: "We're completely happy with the content. If you find it offensive, there's probably a long list of other things on TV that you find offensive too."

The McMahons offer a more serious defense of their lifeblood. "There's no portrayal of murder, rape, or robbery," says Linda. "There's no use of guns or knives." Vince points out that 60% of the audience is over the age of 18 (which also means that 40% is not), and that if you compare the WWF's content to the violence in TV fare like The Sopranos or the sex in, say, Melrose Place, "on balance, I think we're pretty conservative." The truth is that the WWF simply refuses to serve as an ethics cop. If the public wants it, they'll do it. And if it's controversial--well, all the better.

The WWF isn't letting the criticism interrupt its plans, either. In February, the McMahons held a packed press conference at WWF New York, their new entertainment complex in Times Square. Vince shocked everyone by announcing that the WWF was launching a new football league, the XFL. (McMahon, who calls the NFL "overregulated and antiseptic," says "XFL" stands for the "extra fun league," vs. the "no fun league.") The XFL, which will play on the 12 weekends following the Super Bowl, will be a real competitive sports series, but all eight teams will be owned by the WWF--and the games will be produced with WWF "attitude." The first question from the press was "Does this mean you're going legit?" Said Vince: "May I never be fucking legit--anything but that."

Before the press conference was over, the WWF's stock was already plummeting. It closed that day down 25%, at $12.31. Investors who believe that wrestling is a fad see the XFL as confirmation that the McMahons know it too.

There are other issues. All previous attempts to start professional football leagues have failed. Nor does a new league come cheap: WWF estimates the costs at $100 million. ("There's no small way to build a football league," says Linda.) Because of such concerns, two analysts downgraded the stock upon hearing the news--to which McMahon tactfully replied, "They can kiss my ass."

On that day, Wall Street underestimated the McMahons. Sixty days later, the WWF announced it had a partner: Jack Welch's NBC, which will foot half the bill and carry Saturday night prime-time XFL games. Already the effort is in full swing. The WWF has gathered 15,000 resumes from potential players; by the end of October, when season tickets go on sale, it will have hired 600 athletes for the eight teams. Linda says that the league--from the New York/New Jersey Hitmen (a name that Bret "Hitman" Hart sees as another example of Vince's vindictiveness) to the San Francisco Demons--is on schedule to play its first game on Feb. 3, 2001. Mark Riely of Media Group Investors, another large WWF shareholder, sums up the consensus view: "If McMahon is as good as his bravado implies, I think they've got a real good shot."

As for Vince, he'll continue to apply his magic touch--with a heavy hand. "My philosophy in life is earning your stripes every day. If I'm a five-star general when I go to bed, then I'm a buck private when I wake up in the morning." That's a great motto for him to uphold, because in the two mega-arenas he's tackling now, football and Wall Street, he can't fall back on what's worked before--scripting the outcome.