A look at Papa John’s $8M deal with Shaq

RB’s The Bottom Line looks at what it took Papa John’s to land NBA great Shaquille O’Neal as a director and spokesman.
Photograph: Shutterstock

the bottom line

Arguably the most important move Papa John’s has made this year is its agreement with Shaquille O’Neal. At the very least, it is a close second to the now-$250 million investment from Starboard Value.

But the agreement with O’Neal, combined with John Schnatter’s gradual exit from the company he founded and once led, will help the Louisville, Ky.-based chain put some distance between itself and the controversy that rocked it last year.

The NBA great invested in some of the chain’s Atlanta locations is on the board of directors and will endorse Papa John’s.

The pizza chain’s marketing portion of its endorsement contract will pay the former NBA center $4.125 million over three years in three cash payments, according to federal securities filings on Monday.

Papa John’s also agreed to grant O’Neal 87,136 shares of stock that vest between 2020 and 2022. Those shares would currently be worth $4.4 million. That brings the total value of the contract to about $8.5 million, though the value of that deal could change based on the stock price and any other agreements the two sides make.

O’Neal is buying into a joint venture partnership with Papa John’s on nine locations in the Atlanta area.

He is paying $840,000 for a 30% interest in that partnership. The nine locations are valued at $2.8 million, or about $300,000 per location.

As part of that endorsement contract, O’Neal will spend eight “service days,” including four days with Papa John’s creative agency and days devoted to appearing at the company’s stores, with franchisees, and at a community event.

O’Neal agreed to promote Papa John’s on each of his social media accounts, including Twitter, Facebook, and Instagram at least once a month. He agreed to several public relations appearances in association with the brand, many of which he’s already done.

And the agreement includes new “co-branded products,” presumably a Shaq pizza backed with ads featuring O’Neal.

Papa John’s announced the agreement with O’Neal in March, and the ads will be an important part of the chain’s recovery.

The chain’s sales plunged last year after Schnatter stepped into the controversy over NFL players kneeling during the national anthem, and again after he allegedly used a racial slur during a conference call.

The events led to a messy divorce between the company and the man who was once its chairman, CEO and primary spokesman.

Schnatter has since left the company and has been selling his stock. He sold more than 3.8 million shares in May and now controls 19% of the company’s stock, down from a peak of 31%.

In O’Neal, the company gets a well-known and likable personality who has enjoyed a nice post-retirement endorsement career. He also has considerable restaurant experience and is plenty familiar with using his social media accounts to promote brands, as he did with Krispy Kreme recently.

He also fits with the sports-focused marketing the company has traditionally employed, which could speak directly to the chain’s customers.

Getting them to come back won’t be easy, however. Same-store sales declined 7.3% in North America last year and 6.9% in the first quarter. The pizza business is notoriously competitive, and there are now many other options available to get food into the home.

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