Two days before he was sworn into office, Gov. Arnold Schwarzenegger accepted a consulting job paying an estimated $8 million over five years to “further the business objectives” of a national publisher of health and bodybuilding magazines.
The contract pays Schwarzenegger 1% of the magazines’ advertising revenue, much of which comes from makers of nutritional supplements. Last year, the governor vetoed legislation that would have imposed government regulations on the supplement industry.
According to records filed Wednesday with the Securities and Exchange Commission, Schwarzenegger entered into the agreement with a subsidiary of American Media Inc. on Nov. 15, 2003. The Boca Raton, Fla.-based company publishes Muscle & Fitness and Flex magazines, among others.
Watchdog groups and state lawmakers called the contract -- which refers to Schwarzenegger as “Mr. S” -- a conflict of interest.
Larry Noble, executive director of the Center for Responsive Politics in Washington, D.C., said: “This is one of the most egregious apparent conflicts of interest that I have seen. This calls into question his judgment as to who he is working for, and it calls into question what he thinks he owes the public.”
He added: “For a governor to have ... contracted his decision-making and judgment to a company is a real conflict of interest.”
The law allows governors and other elected officials to keep outside jobs. Assembly Speaker Fabian Nunez (D-Los Angeles) has been paid $35,000 a year by the Voter Improvement Program in Los Angeles, a nonprofit organization created by the former president of the Los Angeles County Federation of Labor.
A Schwarzenegger spokeswoman, Margita Thompson, said that his financial holdings were “probably the most complicated of any governor” and that he had complied with all laws for disclosing his income. She said the consulting contract presented “no conflict of interest” because Schwarzenegger did not solicit any advertising.
“The governor did not direct sales or marketing activities of American Media and did not have personal contact with any advertisers to generate the advertising revenue,” Thompson said.
The contract calls for the governor to help the company through his own suggestions and by “being responsive to the reasonable requests” of Weider Publications, a subsidiary of American Media.
In a concession to Schwarzenegger’s job as California governor, the agreement says that he is not compelled to work for the company during “normal business hours on business days.”
“Mr. S shall seek in good faith to make himself available from time to time to Weider” -- after the workday or on weekends, the filing says.
As recently as a few days ago, American Media refused to say anything about Schwarzenegger’s pay. The company filed an 83-page annual financial statement with the SEC last month that, in one paragraph, mentioned a consulting agreement with an unnamed “third party.” Stuart Zakim, an American Media spokesman, refused to say whether the third party was Schwarzenegger.
American Media, which also owns the National Enquirer, the Globe and the Star tabloids, made public the terms of Schwarzenegger’s contract in a separate SEC filing Wednesday.
The governor announced last year that he had agreed to become executive editor of Muscle & Fitness and Flex. He writes monthly columns for both, dictating them to the editorial staff of the magazines. The governor’s office had declined to reveal his salary.
The SEC filing by American Media, which followed repeated inquiries by The Times, is the first public indication of the size of the contract. Schwarzenegger’s financial disclosure statement covering 2004 shows that he received an undisclosed amount of income from American Media. But the state form calls for little specificity, requiring only that public officials report income in excess of $10,000. The statement offered no more detail. And unlike past governors, he has declined to make his tax returns public.
The contract shows that Schwarzenegger’s firm, Oak Productions, gets 1% of the subsidiary’s annual advertising revenue. It holds that “in no event” will payment be less than $1 million a year.
The agreement estimates that the governor’s company will receive $2.15 million in fiscal year 2006; the same amounts in ’07 and ’08; and $1.7 million in ’09. Those sums exceed the salary of the chairman and CEO of American Media, David J. Pecker, whose base pay this year is listed at $1.5 million.
American Media has also agreed to contribute $1.5 million over six years to one of the governor’s tax-exempt groups: a physical fitness council launched this summer at Disney’s California Adventure theme park. The chairman of the council is Austin M. Beutner, a director of American Media.
As a consultant, Schwarzenegger’s role includes “advising on the direction of the” magazines and “otherwise helping in various ways to further the business objectives of the Weider business,” the contract shows.
Weider Publications was started by longtime bodybuilding promoter and Schwarzenegger patron Joe Weider, who brought Schwarzenegger to the U.S. in 1968. Weider sold his magazines to AMI in 2003.
Schwarzenegger’s two muscle magazines are crammed with ads for performance-enhancing dietary supplements promising chiseled bodies and surges of energy. The 257-page August issue of Muscle & Fitness contains 110 pages of ads for supplements, from creatine ethyl ester to anabolic/androgenic “absorption technology.”
The governor used his regular column in the June issue of Muscle & Fitness to defend the supplement industry. He vowed to oppose any effort to restrict sales of the products in California, writing that he is “so energized to fight any attempt to limit the availability of nutritional supplements.”
An article in the August issue of Muscle & Fitness said Schwarzenegger had “lent his support” to a new lobbying group that would work to promote nutritional supplements. “The governor also made it clear that he will remain a phone call away as the coalition progresses,” the magazine said.
Schwarzenegger’s office characterized the article as “hyperbole.”
Last year, the governor vetoed a bill by state Sen. Jackie Speier (D-Hillsborough) that would have required coaches to take a course in performance-enhancing supplements, created a list of banned substances for interscholastic sports and barred supplement manufacturers from sponsoring school events. In his veto message, the governor said that most dietary supplements were safe and that Speier’s bill would have been difficult to implement. He also said the bill unfairly focused on “performance-enhancing dietary supplements (PEDS) instead of focusing on ensuring that students participating in high school sports are not engaged in steroids use.”
Speier said in an interview Wednesday: “I have got to believe the electorate will be incensed that he has this relationship, that he has not been upfront in disclosing it, that he has taken action on legislation that has an impact on the very industry from which he is indirectly receiving financial support.”
Thompson said Schwarzenegger is committed full time to his job as governor: “We just signed a budget, and the governor has a reform agenda. I don’t think anyone could dispute that he has been absolutely focused on his agenda and the state, from the media perspective, from the institutional perspective and from a civic perspective.”
American Media’s publications have been Schwarzenegger boosters since he formed a partnership with the company.
That wasn’t always the case. The National Enquirer published an article in 2001 alleging that Schwarzenegger had had an extramarital affair. Two years later, just before Schwarzenegger signed the contract, American Media produced a 120-page glossy magazine called “Arnold, the American Dream.”
In a new book about Schwarzenegger, author Laurence Leamer said the governor was aware that his contract with AMI would prompt the publisher to end any negative coverage of him. In the book, Schwarzenegger is quoted as saying: “Do you want to work with someone who you are attacking?”
For his pay, the governor’s most public role is his monthly columns. A seven-time Mr. Olympia winner, he speaks with the magazine editors by phone every few weeks. They take notes, draft a column and send it to him for review, said Vincent Scalisi, editor-in-chief of Muscle & Fitness.
“Obviously, we know that he has a busy, full-time job,” Scalisi said in an interview in recent months. “And we don’t want to be a drain. But the reality is ... what a wonderful resource we have access to.”