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Papa John's Deal With Shaq Is No Easy Layup

Rich Duprey, The Motley Fool

Papa John's International (NASDAQ: PZZA) is betting big that former basketball great Shaquille O'Neal can help move the pizzeria beyond its controversial recent past, but there's no guarantee the new partnership will be a slam dunk. 

There aren't many products Shaq hasn't been willing to lend his name to since retiring from the National Basketball Association, with USA Today saying he's endorsed over 50 products and companies, earning himself the nickname The King of Endorsements.

Remodeled Papa John's storefront with Shaquille O'Neal branding

Some Papa John's stores have been remodeled to show Shaquille O'Neal's signature on the storefront, a custom telephone number on signage, and his size 22 footprint outside the doors. Image source: Papa John's.

Yet among those are numerous examples where lending his name couldn't prevent the decline, including:

  • Radio Shack, which still went bankrupt despite rebranding itself as The Shack.
  • Toys R Us, which also went bankrupt despite having O'Neal appear as Shaq-a-Claus for Christmas each year.
  • General Motors' Buick Lacrosse, which went from selling 57,000 cars a year when he began hawking the car to just over 15,500 last year.
  • Power Balance, a sketchy wristband maker that said the hologram each band featured was "designed based on Eastern philosophies" and did... something ...but went bankrupt after being sued over charges of misleading advertising.

So just because Papa John's signed him up doesn't mean success will be an easy layup. But in filings with the SEC, we see just how much the pizza joint is counting on O'Neal to work whatever magic he may have left.

Giving away the store

We knew from when the deal was announced earlier this year Papa John's was hoping for big things. Following former NFL quarterback Peyton Manning's public divestiture from the company, it gave O'Neal a seat on the board of directors in exchange for becoming the company spokesman, which in addition to his board salary he would be paid $8.5 million in cash and stock. He was also allowed to invest in nine company-owned stores in Atlanta, paying just $840,000 for a 30% stake in the restaurants. (Papa John's would retain the other 70%.)

Yet the SEC filings reveal more details about what's expected of both sides in this three-year endorsement deal.

As part of the contract, O'Neal must spend at least eight "service days" making personal appearances on behalf of the chain by visiting company stores, meeting with franchisees, and attending a community event, but also spending at least four days with Papa John's creative agency.

The former NBA star must also promote Papa John's on Instagram, Twitter, and Facebook at least once a month, and he must make several public-relations appearances for the pizzeria, do media and photo-op tours, and sit for a total of 60 minutes of interviews each year. He and the company will also collaborate on developing co-branded products.

Forgetting the past

The totality of the contract indicates that Papa John's believes O'Neal's involvement will allow the restaurant chain to move beyond remarks made by founder John Schnatter that caused controversy, both in regard to the NFL kneeling protests and in comments during preparation for an earnings conference call that were perceived as racially insensitive.

While sales of the pizza joint had been falling before these incidents, their publication created a PR nightmare for the company that saw the sales decline accelerate. The relationship between Schnatter and the board grew increasingly acrimonious and litigious, but Schnatter subsequently agreed to leave the company and has been selling off his stock.

Papa John's has since gone on a rebranding campaign to remove all vestiges of Schnatter's association with the company, and the contract with O'Neal is the latest effort to improve its standing with the community.

It's possible O'Neal's personality, which is as large as the man himself, will allow Papa John's to focus once again on what it does best -- making pizza. But like Shaq's record from the free-throw line, its success is by no means assured.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.