'Papa John' makes no apology for wealth, Obamacare remarks

Andrew Wolfson, The (Louisville, Ky.) Courier-Journal | USATODAY

ANCHORAGE, Ky. — He lives with his family in the most expensive home in this area, a limestone mansion modeled after an Italian villa — a spread so grand that Republican presidential candidate Mitt Romney extolled its virtues during a fundraiser there in May.

"What a home this is, what grounds these are, the pool, the golf course," Romney said in surveying John H. Schnatter's estate, which is assessed at $7.58 million in a county where the Census Bureau says the median value of an owner-occupied home is less than $150,000.

"You know, if a Democrat were here, he'd look around and say no one should live like this. Republicans come here and say everyone should live like this."

The founder and chief executive of Papa John's International, Schnatter, 51, makes no apologies for the 24,000-square-foot residence on 15 acres in this Louisville, Ky., suburb, one of three homes he and his wife, Annette, own in Kentucky, Florida and Utah.

He said he and his company, America's third largest pizza chain, have given more than $30 million in charitable contributions to the community.

Besides, "When you have built a $3 billion company out of a broom closet, I think you are entitled to a nice house."

After Muhammad Ali, Schnatter may be Louisville's most-recognized resident.

But until he stepped into the politically charged health care debate by answering questions about President Barack Obama's Affordable Care Act, he was known mostly for his energetic TV spots in which he trades quips with quarterback Peyton Manning and effuses about "Better Ingredients, Better Pizza."

Now pundits and late-night comedians have mocked and vilified him for saying the health care overhaul might add 14 cents to the cost of each pizza — and that some franchisees might cut workers' hours to avoid paying insurance costs.

In his first extensive interview since those remarks, Schnatter said his only regrets are that they were "misconstrued" by the media and that he didn't respond to "false stories" quickly enough.

But he has begun to fight back, hiring the national crisis public-relations firm Sitrick and Co., whose CEO has been dubbed by Forbes "the flack for when you are under attack."

They have placed op-ed pieces under Schnatter's name highlighting what they say his critics left out: that the day after Obama's re-election he told students at Edison State College in Naples, Fla., that it is "good news" that "100% of the population is going to get health insurance. I'm cool with that" and that "we've always wanted 100% of our employees on health care."

A gift and a curse

So who is the real John Schnatter, the one off camera?

His neighbor in Deer Valley, Utah, CBS sportscaster Jim Nantz who will soon join Schnatter on TV as a Papa John's pitchman, said he is the same man in private as in his commercials.

"He has a ton of energy and is approachable and likable," Nantz said. "He is just like the guy you see on TV. And I think that's refreshing."

But he is also a man driven and obsessed, say friends and former employees — with personal fitness, with himself and with the numbers that measure his company's success.

"This is a guy who lives, eats and drinks pizza," said marketing whiz Jack Trout, who came up with the "Better Ingredients" slogan and was the first to suggest that Schnatter tout his pizza on TV.

Schnatter is one of the two most effective CEO spokesmen in the country, according to Ace Metrix, which measures advertising impact, matched only by Samuel Adams' brewery chief executive Jim Koch.

He is a rare entrepreneur with both the talent to found a company and to run it, says Steve Coomes, who has covered Schnatter for Nation's Restaurant News and Pizza Today.

Schnatter relinquished day-to-day control twice, once surrendering his CEO title, but has come back both times — in part because he can't let go.

"It is his life," said retired chief financial officer David Flannery.

However, some former executives say he could be difficult to work for, and sometimes drove away talent.

"I told him once that he walked up and down the halls like a big cat, stalking," Trout recalled. "I said, 'John, you make people nervous.' "

Profiling five pizza company chief executives in 1998, The New York Times said Schnatter would pop into his restaurants without notice and " blow his stack if any aspect falls short." The story noted that five executives, including his president, had quit in the course of 18 months, all complaining about his management style.

Schnatter said his management style has "mellowed" with age and experience, and his current top executives have worked for the company for an average of 12 years.

Executives that the company asked to comment for this story described him as demanding but fair.

Steve Ritchie, senior president of North American and Latin American operations, said Schnatter has high expectations: "If you compromise the fundamentals, he will call you, and it will be a tough conversation."

'Passion' for wealth

A sign in the soaring, three-story atrium at corporate headquarters illustrates the results. One day last month, it said:

Franchise stores, 2,533

Corporate, 646

Total: 4,093 (Includes 914 in other countries)

Countries, 32

The company that Schnatter started in the back of his father's failing tavern now has 16,500 employees and is expected to make nearly $100 million in profits this year on $3 billion in revenues.

He has sold shares of Papa John's (PZZA on the stock ticker) worth $330.9 million over the years, yet still owns or controls more than 6 million shares worth about $339 million — more than a quarter of the $1.3 billion company.

The Schnatter family — he has three children, two of them adults — can get away on his Citation 750, the world's fastest civilian jet, to their 6,280-square-foot, $5.4 million penthouse apartment in Naples, Fla., that is attached to a Ritz Carlton Hotel.

Or they can jet off to their mountainside condos at the St. Regis hotel and resort in Deer Valley, Utah, which Schnatter bought in 2010 for $23 million.

"He has a passion for being wealthy," said Syl Sosnowski, a former senior vice president of marketing at Papa John's who was dismissed in 2002.

But friend and radio personality Terry Meiners and others say Schnatter also is generous.

He was 34 when gave a $5 million contribution in 1996 that allowed construction of Papa John's Cardinal Stadium for the University of Louisville.

Former UofL stadium czar Mike Pollio, who persuaded Schnatter to make the lead donation, said the CEO negotiated a good deal for the company that gave it naming rights for 15 years and the exclusive right to sell its pizza there over that period.

"It wasn't just a charity donation," Pollio recalled. "He was too smart for that."

The Schnatters also have given millions to other projects around Louisville.

Friends say Schnatter is generous in private as well.

Meiners recalled a time five years ago, when he visited a family whose son was at a local hospital and told him they didn't have enough money for food.

"I called up John and asked him where I could get some Papa John's coupons," Meiners said. "He roared up to my house seven minutes later in some kind of batmobile that cost more than my house. We raced to the hospital, I took him to the room, and Schnatter took the father aside.

"I never asked him what he did," Meiners said — and Schnatter declined to say. "But I know what when we left, something very good had happened to that family."

Birth of a brand

His company started with nothing, but Schnatter's own story is hardly rags to riches.

His mother is a retired real-estate agent. His father and maternal grandfather were lawyers and entrepreneurs.

In high school, Schnatter excelled at math, mastering "analytics" that he would later use to build his company. He told the students in Naples that he got a 790 on his SAT in math (out of 800), but only a 200 on the verbal portion.

"I have a real problem with the English language," he said.

His father founded solar heating, wine distribution and cable TV companies. All failed, and sometimes the family's electricity and water got turned off.

"Daddy was fun-loving and lighthearted — he lived life to the fullest and was not scared to take a risk," he said. "Papaw was more frugal, conservative. I learned from him that if you take a risk, you had better make it work."

Learning the business

The roots of his enterprise were planted when he was 15 and working two jobs across the Ohio River in Indiana — unloading stock at a Jeffersonville liquor store by day and making pizzas down the road at Rocky's Sub Pub by night.

He cast his fate with pizza because the profit margins were better, he said.

"At Rocky's, they'd sell a pizza for $10, and it cost $2 to make it," he told a conference of budding entrepreneurs many years later. "I liked that."

Working his way through Ball State University in three years at another pizzeria in Muncie, Ind., Schnatter devised his recipes and plotted what ovens and mixes he would need.

After the University of Louisville's law school rejected Schnatter and his father bought a failing Jeffersonville tavern, he jumped at the chance to run it.

He took over Mick's Lounge on Sept. 29, 1983. Seven months later, he knocked out a broom closet to make way for a pizza oven, and in three months he'd paid off half the tavern's debt and refinanced the rest.

"At 22, I had something I loved to do, make pizza, and something I was good at, running a business," he said.

Papa John's was born.

Keeping his focus solely on pizza, the company went public in 1993, opened its 500th store the next year and its 1,500th four years after that.

Business Week named it America's fastest-growing company in 1994 and ranked it first on its list of the 100 best-run small businesses. Schnatter in 1999 landed on Fortune's "40 richest under 40" list, estimating his wealth at $402.6 million.

Bumps along the way

He has had difficulties. In the early 2000s, sales began slumping, and for the first time revenues began to decline.

In 2004, the company laid off 45 people at its headquarters.

"Our system was asleep," Schnatter told PizzaMarketplace.com a few years later. "We were on our boats, on our yachts, on our golf club memberships, but we weren't paying attention to the fundamentals of the business."

He said he straightened things out by boosting quality through a system of "mystery shoppers" that measures a cross-sample of 4 million pizzas a week.

After stepping down as CEO in 2005, Schnatter returned to lead the company three years later, and its stock price has more than tripled since.

Political hot seat

Then came the political firestorm — when Schnatter warned that Obama's health care changes would raise pizza prices and could cost workers their jobs.

Most famously, Comedy Central's Steven Colbert, responding to Schnatter's claim that the insurance law could add as much as 14 cents to the cost of a pizza, said: "That's three times the value of a Papa John's pizza."

Though conservatives cheered Schnatter for telling it like it is, Trout, the former consultant, said it was a horrible public-relations error.

"Why upset half your market?" Trout asked. "Why would you even go there?"

Schnatter said his remarks have had no effect on revenues, or the company's stock price, which dipped 9% in the week after his post-election comments but have since then recovered and hit an all-time high.

Unlike former Godfather's CEO and Republican presidential candidate Herman Cain, Schnatter says he has no desire "right now" to run for office, though he adds, "You never want to say never."

Schnatter is a registered Republican but says he grew up in a staunch Democratic Southern Indiana family.

He said he supported Romney — he and his wife gave $120,800 to Romney and the Republican National Committee last year — because of his support for balancing the budget.

Schnatter is likely to remain in the public eye for years. Jordan Zimmerman, his friend and ad man who came up with "Papa is in the house," said he could be on TV until he's 70.

"He finally looks like a Papa," Zimmerman said. "He's in his best years."

The John H. Schnatter file