Schwarzenegger Is Drawing Fire For an Ad Deal

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The New York Times

LOS ANGELES, CA — Arnold Schwarzenegger, who refused a state salary when he became governor, stands to earn at least $5 million under previously undisclosed terms of a contract with a group of fitness magazines, an agreement that critics called an
apparent conflict of interest Thursday.

The financial arrangement, disclosed Wednesday in a filing by the magazines’ publisher to securities regulators, directly ties the governor’s compensation to advertising revenues for the magazines, for which he acts as a consultant. Much of that advertising is for nutritional supplements and other performance-enhancing products.

That is attracting scrutiny because Mr. Schwarzenegger vetoed a bill last year that would have tried to restrict the use of performance-enhancing supplements by high school athletes. The governor, a Republican, said he vetoed the bill because it focused on dietary supplements, most of which he said were safe, instead of ensuring that students avoided illegal steroids.

The revelation could add to the pressure on Mr. Schwarzenegger from Democrats, labor unions and others in the state. Some of his proposed reforms have stalled, and his popularity ratings have fallen.

Mr. Schwarzenegger did not comment on the revelation, reported Thursday in The Los Angeles Times and The Sacramento Bee.

Senator Jackie Speier, who sponsored the bill on student use of supplements, called for the governor to immediately sever the relationship with the magazines, which include Muscle & Fitness and Flex.

”The expectation of the electorate of California is that the governor is working full time for the people of the state,” Ms. Speier, a Democrat from the San Francisco area, said.

Art Torres, chairman of the California Democratic Party, said the relationship should be examined by the state’s Fair Political Practices Commission. And Douglas Heller, executive director of the Foundation for Taxpayer and Consumer Rights, said the governor ”sold out the public interest to protect the ad revenues in his magazine.”

Rob Stutzman, the governor’s communications director, said the uproar was ”much ado about nothing” because the agreement between Mr. Schwarzenegger and the magazines’ publisher had been revealed earlier. Only the compensation was new to the public, Mr. Stutzman said.

He said that it was legal for the governor to have outside income, as do many state legislators, and that the work for the company, American Media, takes up little time.

”The public appreciates that Arnold Schwarzenegger is linked to the world of bodybuilding and fitness,” Mr. Stutzman said, adding, ”And his opinions on dietary supplements have been well documented for decades.”

Mr. Schwarzenegger entered the arrangement with American Media in November 2003, a few weeks after being elected and two days before being sworn into office.

In March 2004, he and American Media, which is based in Boca Raton, Fla., announced that he had agreed to serve as the executive editor of Flex and of Muscle & Fitness. While there was some suggestion made that Mr. Schwarzenegger would be compensated, the emphasis was that American Media would contribute $250,000 a year to a nonprofit organization set up by Mr. Schwarzenegger to promote the health benefits of sports and exercise.

But on Wednesday, in a filing to the Securities and Exchange Commission, American Media released a copy of the contract. Mr. Schwarzenegger, referred to as Mr. S, is supposed to help ”in various ways to further the business objectives” of the fitness magazine division of American Media, Weider Publications. The contract said the work would not be performed during normal business hours.

Under the five-year contract, Oak Productions, Mr. Schwarzenegger’s company, is to receive 1 percent of the net print advertising revenues of Weider Publications. But the payment must be at least $1 million a year.

Mr. Schwarzenegger has also been granted ”phantom equity,” a way of sharing in the growth of the value of the company. The equity could become worth 1 percent of the company’s value, which was stated at the time of the contract as $520 million.

In the governor’s financial disclosure form for 2004, required of public officials, American Media is listed as a source of income, but no amount is disclosed.

Disclosure of the deal also raised eyebrows in the publishing community. “It’s a contract on steroids,” said Chip Block, a longtime publishing industry consultant. ”I have never heard of a magazine company paying this kind of money to a contributor, including a royalty on advertising.”

Paul Wachter, financial adviser to the governor, said the money from the deal ”is not something that is a significant amount of money in his world.” Mr. Schwarzenegger made the deal, Mr. Wachter said, because of a long relationship with the company’s founder, Joe Weider.

Mr. Weider brought Mr. Schwarzenegger to the United States from Austria as a young bodybuilder in 1968. American Media, which also publishes tabloids like The National Enquirer, bought Mr. Weider’s magazines for $350 million in January 2003.

Mr. Schwarzenegger writes columns for the two fitness magazines, and the magazines make much of their relationship with him and exult him regularly.

Some of Mr. Schwarzenegger’s value to the magazines appears to come from his stance that most dietary supplements do not need to be regulated.

According to an article in the August issue of Muscle & Fitness, Mr. Schwarzenegger joined David Pecker, the chief executive of American Media, at a meeting in Columbus, Ohio, in March to organize a new lobbying group to preserve access to supplements.

Mr. Schwarzenegger appears to have benefited more than financially by his relationship with American Media, said Laurence Leamer, author of ”Fantastic: The Life of Arnold Schwarzenegger,” published last month by St. Martin’s.

A few years ago, according to the book, tabloids were writing about Mr. Schwarzenegger’s alleged sexual affairs, hurting his political prospects. Then, in July 2003, when Mr. Schwarzenegger was contemplating running for California governor, he met with Mr. Pecker.

Mr. Schwarzenegger told Mr. Leamer that an explicit deal to end the negative coverage was not discussed, the book says, but that ”it’s common sense.”

“Do you want to work with someone who you are attacking?” he is quoted as saying.

In the California election, Mr. Leamer wrote, the tabloids lauded Mr. Schwarzenegger with headlines like ”A New American Patriot.”
David Carr contributed reporting from New York for this article, and Carolyn Marshall from San Francisco.

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