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    Controversy Prompts Papa John's Founder to Resign as Chairman

  • Before stepping down, John Schnatter apologized for using a racial slur during a May conference call.

    Papa John’s
    John Schnatter founded Papa John’s in 1984.

    Amid another wave of controversy, Papa John’s announced late Wednesday (July 11) that founder and former CEO John Schnatter has resigned as chairman of the board. Olivia Kirtley will act as the pizza chain’s lead independent director, and Papa John’s said it would appoint a new chairman of the board in “the coming weeks.”

    Just hours before, Schnatter apologized for using a racial slur during a May conference call arranged between Papa John’s executives and marketing agency Laundry Service. The incident was reported by Forbes, which said the call was designed as a role-playing exercise for Schnatter in an effort to prevent future public-relations snafus. According to the article, he “used the N-word” when asked how he would distance himself from racist groups online. Schnatter allegedly responded: “Colonel Sanders called blacks [racial slur],” and then complained about Sanders not facing the same kind of public outcry. This was in reference to the earlier NFL-related controversy that many credited for Schnatter’s removal as CEO. In December, Papa John’s announced that Schnatter, who founded Papa John’s in 1984, would shift to a role as chairman of the company and COO Steve Ritchie, a longtime employee with the company who started in 1996, was stepping in.

    Schnatter’s comments about the NFL, which came during a third-quarter earnings call on November 1, made immediate headlines.

    “The NFL has hurt us. And more importantly, by not resolving the current debacle to the player and owners' satisfaction, NFL leadership has hurt Papa John's shareholders," he said.

    “The NFL has been a long and valued partner over the years, but we are certainly disappointed that the NFL and its leadership did not resolve the ongoing situation to the satisfaction of all parties long ago,” he continued. “This should have been nipped in the bud a year-and-a-half ago. Like many sponsors, we are in contact with NFL, and once the issue's resolved between the players and the owners, we are optimistic that the NFL's best years are ahead.”

    This incident dropped Papa John’s stock 11 percent at the time, which trimmed some $70 million off Schnatter’s net worth. Shares declined 25 percent since the comments. They were down another 5 percent on Wednesday, lifting that, for the time being, to about 30 percent.

    In February, Papa John’s and the NFL mutually agreed to end the chain’s official sponsorship. It would instead refocus its marketing efforts into the 22 NFL teams Papa John’s remained a sponsor of. Pizza Hut promptly then announced it was taking Papa John’s spot as the official sponsor of the NFL, a deal that began with the NFL Draft and includes the collective use of all 32 marks. Pizza Hut said the multi-year agreement will offer the chain "a vast array of exclusive marketing rights, benefits, and designations that will unmistakably connect the brand with the NFL and its teams, players, events, partners, properties, and the many NFL experiences that capture the passion of consumers and football fans from all over the world."

    As for Papa John’s, the financial news worsened from there—related or not. The brand’s same-store sales dipped 3.9 percent in North America in Q4 and then 5.3 percent in Q1 fiscal 2018, year-over-year. Its company-owned domestic store count dropped 29 stores, a decrease of 4.1 percent, to 670. Also, the company announced chief marketing officer Brandon Rhoten, who is now with Potbelly, would be exiting the company.

    Returning to the May call, Forbes said Schnatter continued by reflecting on his early life in Indiana where, he said, people used to drag African-Americans from trucks until they died. According to Forbes: “He apparently intended for the remarks to convey his antipathy to racism, but multiple individuals on the call found them to be offensive, a source familiar with the matter said. After learning about the incident, Laundry Service owner Casey Wasserman moved to terminate the company’s contract with Papa John’s.”

    Schnatter confirmed the allegations in an email to the publication Wednesday afternoon.

    “News reports attributing the use of inappropriate and hurtful language to me during a media training session regarding race are true. Regardless of the context, I apologize. Simply stated, racism has no place in our society,” he said.

    Schnatter also resigned from the board of trustees for the University of Louisville, the school said.