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CEO Schnatter Blames NFL Leadership for Papa John’s 3rd Quarter Sagging Sales

Washington Redskins players kneel before game (Photo: Wiki, Keith Allison)

Papa John's CEO John Schnatter blasted the NFL leadership yesterday on a conference call regarding the franchisor's 2017 3rd Quarter Results, stating the football league's ongoing player protests during the national anthem is hurting their sales by not resolving the controversy early on.

"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. This should have been nipped in the bud a year and a half ago," CEO Schnatter said.

The player protests started last year when former San Francisco 49ers quarterback Colin Kaepernick kneeled during the national anthem to protest what he said was police mistreatment of black males. After President Trump stated at an Alabama rally last month that team owners should get rid of players who protest during the anthem, more players began kneeling, according to a FoxBusiness report. Schnatter, who founded the company in 1984, was a donor to Trump's presidential campaign and has railed aginst government regulations, according to news reports.

Papa John's is the official pizza company of the NFL, and is one of the league's biggest television advertisers. The pizza chain has been a league sponsor since 2010. The franchise company is also the most recognized brand associated with the league, company official said on the earnings call. They also said they have already pulled much of the company's NFL television advertising, and the NFL responded by giving Papa John's additional future spots. Late yesterday, a spokesman for Papa John's clarified that the spots themselves weren't being pulled, just the NFL shield or "official sponsor" designation on these spots.

The Louisville, Kentucky-based company's stock was down about 12 percent in trading Wednesday after it cut expectations for earnings and sales growth for the full year, the Washington Post reported. It said, "Although the league's TV ratings were down a year ago, Papa John's (Nasdaq:PZZA) sales grew. According to WDRB, executives said the company's sales are expected to grow this year and in 2018, but company shares are down about 23 percent."

Schnatter stated, "You need to look at exactly how the ratings are going backwards. Last year the ratings for the NFL went backwards because of the elections. This year the ratings are going backwards because of the controversy, and so the controversy is polarizing the customer, polarizing the country."

CNN Money reported that the NFL may be part of the problems Papa John's faces, but its far from the only one. "The stock is down 24 percent this year, while competitors including Domino's (Nasdaq:DPZ) have performed well (Domino's stock is up 12 percent this year.)"

Not all companies see the NFL protests as a problem. The FoxBusiness report added, "Executives at chicken wing chain Buffalo Wild Wings Inc. said last week that the company didn't expect declining NFL viewership to hurt a key sales figure. And, Kohl's, the department store operator, said it is working with NFL on a holiday ad campaign."

But some take a dim view of player protests. Phil Long Ford in Denver pulled their ads featuring Von Miller, who they were sponsoring, when he and others took at knee at last Sunday's game. Another, New Jersey mega-car dealer Flemington Car and Truck Country, said last month it would pull ads for the dealership from NFL game broadcasts for at least the rest of the 2017 NFL season.

Members of USAA, an insurance company that caters to members of the military, are also taking a stand against players who take a knee. They are organizing to "demand" that the insurance company drop its sponsorship of the NFL. The company's community message board on its website is deluged with demands that USAA dump the NFL.

CEO Schnatter decries NFL's leadership is root of problem

On Wednesday, Bloomberg also reported that "Schnatter is going after NFL Commissioner Roger Goodell, saying weak handling of the league's national-anthem controversy has hammered sales of his pizza." Specifically, the CEO said, "NFL leadership has hurt Papa John's shareholders." The news report said, ". . . Schnatter's comments mark the highest-profile example of an NFL partner publicly blaming the outcry for hurting business."

While it is hard to quantify the connection between the NFL and pizza sales, Bloomberg said Papa John's did post disappointing results in the latest quarter. "Its shares fell as much as 13 percent on Wednesday, the most in two years, after same-store sales missed analysts' estimates." It added that Papa John's also trimmed its revenue and profit forecasts for the year. The NFL declined to comment.

John Schnatter frequently appeared in advertisements during NFL games, sometimes alongside Denver Bronco's star quarterback Peyton Manning, who became a franchisee of the pizza chain in Colorado. Bloomberg reported that "in 2014, when Papa John's posted a nearly 10 percent gain in North American same-store sales, the company credited its close relationship with the NFL and Manning for driving its business in the U.S."

"On Wednesday, the tone was quite different. Papa John's post-earnings conference call was dominated by negative talk of the NFL. The league's name came up 44 times during the discussion, compared with 12 mentions in the year-earlier call," Bloomberg stated.

Michael Halen, an analyst at Bloomberg Intelligence, said it's not a stretch to say the current ratings decline is hurting pizza sales. "With fewer Americans watching games, fewer people are presumably ordering pizza, and seeing Papa John's ads." Halen said he is not blaming them [Papa John's] for citing it, adding, "If this is a permanent thing, they have to figure out where to spend some of those ad dollars."

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