Shaquille O'Neal joins Papa John's board as it works to repair its image

  • Papa John's announced Friday that Shaquille O'Neal is its newest board member and the face of the brand.
  • Nine months ago, founder John Schnatter's likeness was stripped from its marketing materials and pizza boxes after a series of public scandals.
  • The retired NBA player has been investing in restaurants since his days in the league.

Papa John's announced Friday that Shaquille O'Neal will be its newest board member and the new face of the brand as the struggling pizza chain tries to improve its image with U.S. consumers.

The change comes eight months after founder John Schnatter's likeness was stripped from the pizza chain's marketing materials and pizza boxes. The company's North American sales tanked after a series of scandals involving Schnatter, which started with him blaming the NFL's leadership for poor pizza sales. He stepped down as chairman after it was revealed that he used a racial slur on a conference call.

To replace Schnatter as the brand's face, the company chose an African American basketball star.

"The addition of Shaquille on the board, I think is really going to highlight what we need to do from a marketing standpoint to get those sales moving," CEO Steve Ritchie said on CNBC's "Squawk on the Street."

Investors seem to agree with Ritchie. Shares of the company rose more than 5 percent in morning trading Friday. The stock, which has a market value of $1.57 billion, is down 12 percent over the last year.

O'Neal, who initially approached Papa John's, will serve as the board's first African American director, as well as an investor in nine Papa John's restaurants in Atlanta. Over time, customers may see him endorsing the brand in commercials, as well as social and digital integrations.

Ritchie said that O'Neal is not the only diverse voice that Papa John's is trying to bring to the company.

"We are working through diversity not only on the board, but also the leadership team, franchise base and supplier base," he said.

The three-year endorsement deal will net him $8.25 million, paid half in cash and half in Papa John's stock. That's on top of the $5.8 million on reimaging costs that the chain spent last year. Because of O'Neal's role as an endorser and franchisee, Papa John's does not expect that he will be considered an independent director under Nasdaq rules.

"The first thing when we met, what we talked about, was, you know, diversifying leadership roles and helping the African American community," O'Neal told CNBC. "As I think about all of the stuff that went on, I worry about the 800 franchisees who did nothing wrong."

Eric Schiffer, chairman of Reputation Management Consultants, said he expects the brand's turnaround to take around two years with O'Neal endorsing the pizza chain.

"I don't think he's seen as a sell-out. He's got the trust, certainly with millennials and certainly with African Americans," he said.

As a franchisee, O'Neal will hold a roughly 30 percent stake in the nine Atlanta stores, while the Papa John's will own the remaining 70 percent. He will provide $840,000 in financing for the $2.8 million joint venture.

In addition to his background as a retired NBA player and analyst, O'Neal has been investing in restaurants since his days in the league. He owns a Krispy Kreme Doughnuts franchise in Atlanta, a Las Vegas fried chicken restaurant called Big Chicken and a Los Angeles fine dining restaurant called Shaquille's. He previously owned 27 Five Guys franchises.

The company recently reached a settlement agreement with Schnatter. As part of the settlement, he would step down from the board if he and the company manage to find a mutually acceptable independent director not affiliated with himself or Starboard Value, the activist hedge fund that recently invested in Papa John's. Even if that does not happen, Schnatter's term on the board expires in April.

A representative for Schnatter declined to comment.

Papa John's most recent additions to its board include Michael Dubin, CEO of Dollar Shave Club; Jocelyn Mangan, CEO of Him For Her and a former OpenTable executive; and Anthony Sanfilippo, former chief executive of Pinnacle Entertainment. O'Neal's addition brings the number of directors to 12.

The pizza chain has been trying to stage a comeback, focusing its marketing messaging on its use of "better ingredients" and releasing six new pizza flavors. Ritchie said that the company may strike similar deals with other investors, but that its immediate focus is on executing O'Neal's deal.