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Papa John’s finds out the problem with blaming the NFL for its poor sales

ByJosh Bernoff

On Papa John’s most recent earnings call, its CEO and founder John H. Schnatter blamed poor results in part on controversies surrounding the NFL, which the restaurant chain sponsors. Stepping into the middle of a political controversy was a mistake. So was clumsily trying to walk it back on Twitter.

What Papa John’s said on the earnings call

Papa John’s had its usual Q3 2017 earnings call on November 2. The company sponsors the NFL and has cited the sponsorship as contributing to sales in past calls. This time, uncharacteristically, executives and the analysts questioning them mentioned the NFL 46 times in the call. Here’s are some excerpts of what they said.

Schnatter, Founder and CEO: Now to the NFL. 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. Let me explain. The NFL has been a long and valued partner over the years, but we are certainly disappointed that NFL and its leadership did not resolve the ongoing situation to the satisfaction of all parties long ago. This should have been nipped in the bud 1.5 years ago. Like many sponsors, we are in contact with NFL. And once the issue is resolved between the players and the owners, we are optimistic that NFL’s best years are ahead, but good or bad, leadership starts at the top. And this is an example of poor leadership. . . .

Steve Richie, President and COO: Multiple factors negatively impacted our [sales compared to the same stores previously] for the quarter, including an increasingly competitive environment; temporary store closures from the natural disasters; and another year of unexpected decline in viewership of the NFL, combined with significant negative consumer sentiment of our association with the league. These NFL challenges have persisted into Q4, and the negative impact is — into our projected results has been reflected into our updated full year sales and earnings guidance. . . .

Richie (in response to an analyst’s question): I would say predominantly, yes, the NFL situation has persisted, and the pressure that it’s applying to our sales that has bled into the start of the fourth quarter. Clearly, we make a sizable investment in the NFL. And as we just upped our partnership with the NFL last year, we also upped our investment levels and upped our creative solutions that we would apply to that. So we expected significant tailwinds coming from the NFL coming into the fourth quarter, and what we’ve experienced is more headwinds. So we have — basically contribute that into what we’ve provided in the guidance on the fourth quarter. . . .

Richie (in response to another analyst’s question): So clearly, we’ve had a long-standing relationship with the NFL, and it’s served us quite well just in terms of the overall brand awareness. We’re actually the #1 recognized partner with the NFL 2 years running. So we get the benefit when things are going well, and clearly we’re going to get the downside implications when things aren’t going that well. So we’ve done a number of things to make some changes that we’re not going to be able to get the full leverage of the NFL. However, some of the investments are there. So those dollars are locked . . .

Here’s the thing about earnings calls. The numbers are real, hard facts (or at least, as dependable as the company’s financial reporting can make them). The story around the numbers, though, leaves plenty of room for weaselly generalizations. Management rarely tells stories about how they have failed. They like to tell stories about external factors out of their control, and how they are fixing or addressing the problem.

In this case, the story goes like this:

  1. Sponsorships and advertising drive sales.
  2. The value of the sponsorship depends on ratings, the number of viewers
  3. The ratings for the NFL are down.
  4. The reduced ratings are because of the controversy around players kneeling during the national anthem.
  5. Papa John’s sales are down because of the reduced ratings.
  6. Papa John’s sales are also down because African Americans unhappy with the sponsorship are boycotting the company.
  7. Therefore, Papa John’s sales are down because of the controversy.

Some of this makes sense. But I don’t think there’s any proof that the controversy is mainly responsible for the ratings, and therefore it’s a stretch to blame it for a decline in pizza sales. I’ve also seen little evidence that the move to boycott Papa John’s has any traction.

Bringing it up is not very smart. It won’t increase sales. It won’t help the stock price. But it does subject Papa John’s to questions about its position regarding the NFL, boycotts, and protests. And it raises questions about CEO Schnatter’s past conservative political stances. Basically, you can take a political stand (as Hobby Lobby does) or you can stay out of the fray, but it’s not so smart to just dip your toes in a controversy.

Then Papa John’s tried to back out of its previous statements

After two weeks of controversy, Papa John’s made statements on Twitter:

Translation: We’re sorry we brought it up. We support both sides. And we’ll bring up Nazis just for giggles.

This is an attempt to put the toothpaste back in the tube. And it fails. It’s not from the CEO. It’s not going to bring back upset African American customers or fervent flag-wavers. It’s going to offend people who don’t like to see middle fingers in their twitter feeds. And is it really plausible that Papa John’s pizza is the missing element that will get the league and players on the same page?

What you can learn from this

Companies that get drawn into political controversies rarely fare well. Ask Keurig.

Don’t blame your sales shortfalls on politics.

Don’t take a political stand unless you feel it’s central to your company’s business.

If you do take a stand, stick by it, don’t try to back out.

And if your CEO makes a mistake, your CEO should be the one apologizing for it.

 

 

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