Barron's: Schwarzenegger crushes stake in supplements Stock: Arnold didn’t stick around for a raw deal in MusclePharm after the CEO got the boot and the stock tanked.
Arnold Schwarzenegger originally found fame through his physique and action films, but in subsequent years he has proved that he is no dumbbell through two terms as the governor of California.
He’s turning 70 this year, but Schwarzenegger is far from soft and expendable, as shown by his debut as host of The New Celebrity Apprentice. In fact, he just went toe-to-toe on social media in a recent high-profile spat with President Donald Trump over Arnold’s performance.
Schwarzenegger managed to restrain himself from his initial instinct to “smash [Trump’s] face into the table.”
Schwarzenegger also recently resolved another dispute in a civil manner. In July 2013, he signed an endorsement and licensing deal for supplements maker MusclePharm (ticker: MSLP) to produce powders and bars bearing his likeness. Perhaps the perceived strength of a product such as “Arnold Schwarzenegger Iron Whey” is undermined when produced in strawberry-banana and cookies ‘n’ cream flavors, but that’s a subjective take.
Objectively, however, the deal eventually soured to a cheap protein shake. It’s not clear what specifically Schwarzenegger was unhappy about, but one hint is that the original deal only included 780,000 restricted MusclePharm shares -- valued at about $10.86 each, totaling $8.5 million at the time -- and the promise of future royalty payments. There was no cash up front.
MusclePharm shares chugged along for another year or so as the company signed up jock endorsements, renewed a pact with Ultimate Fighting Championship, and reached a deal with Tiger Woods, whose celebrity brand was still smarting from infidelity scandals.
Investors were pumped. MusclePharm stock climbed to a record high of $14.20 in early October 2014, raising the value of Schwarzenegger’s stake to more than $11 million.
But by September 2015, MusclePharm desperately needed a spotter. The Securities and Exchange Commission charged the company with omitting or understating nearly a half-million dollars’ worth of personal perks to executives.
A settlement with the SEC followed the revisions of four years of regulatory filings. “If we didn’t report certain things, it’s because we just didn’t know,” said MusclePharm co-founder Brad Pyatt, who was chief executive at the time, putting up what sounds like a weak defense.
By March 2016, Pyatt--the original pitchman to Schwarzenegger--was out. That might have caught Schwarzenegger’s attention. He contacted MusclePharm two months later, saying he wanted to end the deal just shy of the original three-year term.
The termination became effective Jan. 4. This time Schwarzenegger and his affiliates got cash up front: $1 million, and another $2 million within six months. Perhaps Schwarzenegger had received royalties below expectations, or possibly none at all.
Schwarzenegger also sold his holdings in MusclePharm, which by now had wasted away to a $2 stock, for less than $1.7 million to a third party. A regulatory filing in mid-February confirmed he no longer owned MusclePharm stock directly or indirectly.
The company agreed to end sales of the Arnold Schwarzenegger product line and to donate remaining usable product to a charity chosen by Schwarzenegger, or otherwise destroy current inventory.
Despite the pact, MusclePharm’s Schwarzenegger products continue to be sold through third parties on Amazon.com (AMZN) and directly by Wal-Mart Stores (WMT) unit Jet.com.
MusclePharm didn’t respond to a query as to why the product was still available.