ONTD Political

Papa John's Obamacare Costs Are Far Less Than Price Of Free Pizza Giveaway

News flash to Papa John’s CEO John Schnatter: Obamacare isn’t the only thing costing your business money.

The pizza chain head has made his views on the Affordable Care Act clear in recent months, claiming the new health care law will cost his business about $5 to $8 million per year. To compensate Schnatter's said he will likely raise pizza prices and cut back some workers’ hours so he doesn’t have to insure them.

Caleb Melby of Forbes has graciously done the math on Obamacare’s cost to Papa John’s and according to his analysis, to cover the cost of Obamacare, the pizza chain would have to raise prices by 3.4 to 4.6 cents per pie -- way less than the 11 to 14 cents Schnatter claims he needs.

And there are other changes the chain could make to save some money, Melby notes, like not giving away 2 million pizzas for free at a cost of between $24 and $32 million to the company, for example.

We're guessing Obamacare won't impact life at Schnatter's lavish home, a 40,000 square-foot mansion in a tony suburb of Louisville, Kentucky, that features several swimming pools, a private golf course and a 22-car garage among other amenities, according to CelebrityNetworth.com.

“Who would’ve imagined pizza could build this," said former presidential candidate Mitt Romney earlier this year. This is really something. Don’t you love this country? What a home this is, what grounds these are, the pool, the golf course…. This is a real tribute to America, to entrepreneurship."

Schnatter is just one of many company heads using Obamacare as an excuse to make changes at his company. Murray Energy's CEO laid off 160 workers the Wednesday following President Obama’s reelection, claiming his company was in “survival mode” due to regulations and taxes Obama put in place. The reality: the coal industry, of which Murray Energy is a part, is in decline thanks in large part to a recent influx of natural gas into the U.S., according to the Washington Post.

The owner of 40 New York-area Applebee’s franchises told Fox Business last week that he wouldn’t hire any new workers and would be cutting back the hours of some of his current employees as a result of Obamacare. Applebee’s parent company distanced itself from his statements as the company faced backlash over his comments.

One super-rich CEO backed down from his threat to downsize if Obama was reelected. David Siegel, the CEO of Westgate Resorts and the man who tried to build the biggest house in America, said that he actually gave his workers raises in the wake of Obama’s win. In the lead up to the election, Siegel sent his employees an email warning them to vote for Romney or else.


Breaking Down Centi-Millionaire 'Papa' John Schnatter's Obamacare Math

Papa John Schnatter is no fan of Obamacare. The CEO of Papa John’s International has occasionally railed against the reform for months. Leading up to the election, he was a Mitt Romney supporter and fundraiser. Now that the election is over, he’s doubling down on his claim that the health care reform will force his company to increase pizza prices by 10-14 cents a pie. He estimates that Obamacare will end up costing his company $5-8 million annually.

The issue: the Affordable Care Act dictates that full-time employees (30 hours or more per week) at companies with more than 50 workers need to be provided health insurance. Schnatter has further claimed that some employers will cut employee hours to avoid providing them with healthcare.

His remarks have sparked anger on the internet, one thread on social news site Reddit, titled “There are plenty of places to get cheap s***** pizza in the world- Anyone else on reddit ready to boycott Papa John’s?” has captured more than 21,000 up-votes and 4,500 comments. A host of Facebook groups with the same idea have cropped up in the past 48 hours.

Meanwhile, shares in Papa John’s International have been tumbling since last Thursday, falling from $51.70 at market close Wednesday to $49.22 on Monday, a 4.2% drop.

Checking Papa Schnatter’s Math

Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. So if Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% (yes, fractions of a percent) expense increase. It’s difficult to set that ratio against the proposed pie increase, given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range: .6% to.9%. But the cost transference becomes less equitable if you’re looking at medium pizzas, which run closer to $12, meaning a .8% to 1.15% price increase.

For the sake of argument, let’s say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him.

So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.

In September, the company announced that it would be giving away 2 million free pizzas. That was, of course, a promotion designed to increase brand awareness and to invite consumers to try the brand — with the ultimate goal of selling more pizzas. Those giveaways can’t really be cataloged alongside sales that would have been made otherwise. But just in case you’re curious, that would be the equivalent of $24 million to $32 million in pizza revenue.

Necks In This Game

Standing to lose (or gain) as his company determines how best to operate under new regulations is Papa Schnatter himself, who owns 6,094,409 shares, or nearly one fourth, of Papa John’s, according to the company’s most recent annual report. 1,268,052 of those shares are held in a family limited partnership and 84,000 shares held in a 501(c)(3). The rest are directly owned. At the $49.44 share price, subtracting those held in a charitable trust, the remaining 6,010,409 shares are worth roughly $297 million. Schnatter’s compensation packages for years 2009-11 were $2,319,643, $2,614,516, and $2,745,219 respectively, also according to the annual report. Papa John’s International has not paid a dividend since 2005.

Also hanging in the balance are the shares of institutional investors FMR (11.6%), BlackRock (6.7%) and JP Morgan Chase (5%). But if these notions of protest materialize, Papa John’s front line will be populated by the franchise owners who operate many of its 4,000-plus international locations.

Emails sent to Papa John’s Investor Relations and calls placed to Papa John’s Public Relations were not immediately returned for comment.


1. First of all, I’m really enjoying the spirited conversation on this post.

2. With regard to the pizza giveaways. These are not “lost revenue.” They are a marketing tactic designed by the company to bring more consumers to Papa John’s, with the end goal of selling more pizzas and generating more revenue. It is a strategic investment. Further, the cost of giving away a pizza is not equal to the market value of that pizza. I apologize if that was not made clear above.

3. Some seem to think my analysis suggests I don’t appreciate a business’s duty to shareholders to maximize value. That is not in dispute. But (given the parameters I set up), using Schnatter’s figures, the costs his company will incur due to Obamacare are not equal to the pie increases he mentions. Those pie increases would more than make up for damage done to the company’s net income through increases to operational expenses. Of course, if he thinks it won’t harm the bottom line, he is absolutely allowed to increase prices further. Given inflation and expansion, his other expenses will obviously increase in the following years too. But attributing all price increases to Obamacare would be disingenuous.

4. In introducing the piece, I mentioned fledgling internet efforts to boycott Papa John’s. Now, counter-efforts are underway. Google “National Papa John’s Appreciation Day” to learn more.

5. Finally, I get the impression that Schnatter is attempting to communicate that there is no such thing as a free lunch, which is true. In the comments, many have mentioned that other companies will most likely need to increase prices in response to Obamacare. That is also true. The question that can’t be answered right now is: How will Schnatter’s open communication and politicization of price increases ultimately impact his company? Variables to consider: boycotts, counter-boycotts and shareholder perceptions of all the above. Previous case study: Chik-Fil-A.


OP: Mmmm! Forgive this. I think I'm hungry. It is nice to know that the backlash is getting attention (eg, Applebee's is distancing itself from one franchise owner.
shortsweetcynic 15th-Nov-2012 03:02 am (UTC)
My commusocialism is showing here, but...I'd be happy to pay another quarter for a pizza if I knew the guy delivering it was getting health insurance as a result.

Won't ever be buying papa johns again (apart from anything - have you ever heard of vegetables, guy? Your commercials make my arteries hurt), but the position stands.
fishnet_hamster 15th-Nov-2012 03:22 am (UTC)
My commusocialism is showing here, but...I'd be happy to pay another quarter for a pizza if I knew the guy delivering it was getting health insurance as a result.

I agree. What else can I buy with that stray quarter anyway, other than a gumball?
mutive 15th-Nov-2012 03:08 am (UTC)
One thing my father said re: nationalized health care is that part of the reason the Republican party is fighting it so hard is that no population who has ever had it has voluntarily opted to abandon it. The assumption is that once the US goes "public health care!", that we'll insist on it forever and ever.

Not surprising, really. I've been under both systems. And after that, I honestly don't get why anyone would object to public health care. (Or at least some kind of public health care system. I doubt the US will be identical to the system in Singapore, Hong Kong, or the NHS.) And I'm fairly middle of the road, moderate, so have no strong ideological leanings that would say, "Yes! Public health! Score!!!"

What's odd to me are these weird attitudes that it either must cost this huge amount more (seeing as most businesses *already* offer health insurance, in which case the scenario is...the same as ever?) or anti-entrepreneurial (I ran my own business for a short spell and part of the reason I stopped was that I freaked out about what would happen if something terrible happened to me and I could no longer buy health care on the private market). I think a lot really does come down to this peculiar ideological bent that says, "anything the government does must be *bad*, because government = bad. Ergo, government in healthcare = bad."

Although I've never really considered a good chunk of the electorate to be all that bright. In fact, I keep praying that those who protest "Keep the government out of my Medicare!" get exactly what they wish for.
nicosian 15th-Nov-2012 03:41 am (UTC)
I just cannot grasp how the right will scream "get a job if you want insurance", yet, they won't pay wages that allow one to buy it on the market as is, and they won't group plan their employees fairly.

Then they howl with indignance at the food stamps and medicaid and supports people working the 29 hrs a week need because no one pays beyond a pittance at full time. ( IMO full time? food, insurance, rent and nessecities should be at LEAST covered on your salary, must be nice for the companies to take advantage of state supports to keep wages so low!)

some of the comments i saw were "they should be grateful for the paycheck, they're not owed insurance". As I understood it, medical insurance was tied to salary way back in the day for some reason, and now people should be merely grateful for the pittance they get at all?

at least at ft wages at 8 an hour in canada, i wasn't living large, but my healthcare was guaranteed and I had income to live on.

Their math doesn't work. Its a failure of their humanity that profit at the expense of the people who made them what they are now, is a lauded trait.

kaelstra 15th-Nov-2012 04:01 am (UTC)
Yup. It basically seems like, "Get rich/hope someone rich in your family dies and they liked you a lot" is how the right handles health insurance.
fishnet_hamster 15th-Nov-2012 03:43 am (UTC)
And now Papa John's is facing a class-action lawsuit.


Mmmmm, delicious karma.
browneyedguuurl 15th-Nov-2012 03:56 am (UTC)
It definitely tastes better than their pizzas.
crooked_halo 15th-Nov-2012 03:54 am (UTC)
I have no problem with paying another 10 cents for my pizza if it means that employees actually get fair treatment and health insurance.

I find it ludicrous that this guy is cutting back on hours to avoid having to give his employees benefits and essentially do right by his employees. And while I can understand/appreciate that a business needs to be concerned with its bottom line, I don't believe that having ethical business practices needs to be at odds with your bottom line. In fact, there are many situations where having ethical business practices will bring in more customers. Not to mention that having a good benefits package will retain your employees, which means less money spent on hiring and training, higher customer satisfaction (and thus higher chance of customer retention)

Or you could just be a cheap bastard because you're pissed that the GOP didn't win the election.
xo_bumblebee 15th-Nov-2012 04:44 am (UTC)
So totally this!
astridmyrna 15th-Nov-2012 04:02 am (UTC)
This is really something. Don’t you love this country? What a home this is, what grounds these are, the pool, the golf course…. This is a real tribute to America, to entrepreneurship."

Nothing says entrepreneurship like building your empire on the backs of thousands of people in need of work.

Ugh, the more articles I see of wanking CEOs, I keep going back to the Red Mill article.
nicosian 15th-Nov-2012 04:15 am (UTC)
America is avarice and greed and personal pools and golf courses while your staff scrabble for essentials.

That's some tasty christian nation values, rombot. :D
tabaqui 15th-Nov-2012 04:42 am (UTC)
If you want to look at this purely selfishly - what costs more, a ten-cent hike in the price of your pizza, or subsidizing the pizza-delivery guy when he comes down with friggin' some previously-undiagnosed illness (that could have been cured with 50 bucks worth of meds a year ago) that puts him in the hospital for a couple months?

The math says - 10 cent price hike!

What a jackass.
mary_pickforded 15th-Nov-2012 04:51 am (UTC)
He should have just raised his prices and kept his trap shut. No one would have noticed anyway.
ahria 15th-Nov-2012 04:59 am (UTC)
effervescent 15th-Nov-2012 05:23 am (UTC)
Having a cynical moment, and wondering if the revenue will actually go up, the way that it did for Chick-Fil-A.

I hope stuff like this doesn't hold Obamacare back.
cyranothe2nd 15th-Nov-2012 05:38 am (UTC)
It's almost like they're blaming Obamacare for their poor business decisions. *strokes beard* Hmmmm....
ragnor144 15th-Nov-2012 01:16 pm (UTC)
I am going to be a broken record here, but health insurance should never be linked to employment. I cost the system money by staying poor enough to get Medicaid so I don't die without my meds. This had added to my stress which worsens both my diabetes and my bipolar disorder, leading me to think that I can't do this anymore and should try for disability. Or I could be working and paying taxes. It seems like a no-brainer to any rational person.
pamelalillian 15th-Nov-2012 03:18 pm (UTC)
i totally agree! it sucks that i don't care access to mental health services i really need and have to bypass jobs i would be interested in only bc they don't offer health benefits. i know quite a few ppl who have to stay at a job even when offered better opportunities only to keep their health insurance.
pamelalillian 15th-Nov-2012 03:05 pm (UTC)
haven't bought their pizza in years and won't! vile man...
mirhanda 15th-Nov-2012 06:53 pm (UTC)
This country needs to either divorce medical care coverage (I don't even want to say "insurance" because you can have insurance and not be able to afford to get medical care) from employment or pass a law that says employers must cover anyone who works for them at least 30 minutes a week.
caterfree10 15th-Nov-2012 09:06 pm (UTC)
Fucking this. I'd prefer single payer healthcare myself, tbh. Fuck this country sometimes, ugh.
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