CA: Gov. to Be Paid $8 Million by Fitness Magazines

SACRAMENTO — 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 Nuñez (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.

Governor's contract with Fitness magazine at a glance

The Associated Press

http://www.bakersfield.com/state_wire/story/5585720p-5558379c.html

Gov. Arnold Schwarzenegger's contract with Weider Publications, a subsidiary of American Media Inc., will pay him at least $5 million over five years. The two entered a memorandum of understanding on Nov. 15, 2003, two days before Schwarzenegger was sworn into office. The contract took effect the following January.

In March 2004, the governor announced he would become executive editor of two American Media magazines, Muscle & Fitness and Flex. He writes a column for the magazines but otherwise has no day-to-day editorial responsibilities.
Oak Productions (referred to in the contract as Oak) is Schwarzenegger's production company. He is referred to as Mr. S in the contract. Here are some key passages from the agreement:

- Weider is engaged in the magazine publication business and would like to obtain certain consulting services from Oak, and Oak would like to provide such consulting services to Weider.

- Weider and Oak shall agree from time to time upon the specific consulting services to be provided pursuant to the terms of this agreement, which will include advising on the overall editorial direction of the specific Weider magazines and otherwise helping in various ways to further the business objectives of the Weider business by either (i) performing services suggested by Mr. S and consented to by Weider or (ii) being responsive to the reasonable requests of Weider. Such consulting services of Oak to be furnished to Weider pursuant to this agreement will be provided exclusively by Mr. S and are subject to Mr. S's other commitments and his professional and personal availability as determined in his sole discretion. Mr. S shall seek in good faith to make himself available from time to time to Weider after regular business hours or on weekends throughout the term (defined below). For the avoidance of doubt, Mr. S shall not provide any consulting services to Weider pursuant to this Agreement during normal business hours on business days.

- Mr. S will serve as the "Executive Editor" of Muscle & Fitness and Flex in relation to the consulting services being provided to Weider pursuant to the terms of this Agreement. ... Such title of "Executive Editor" will not confer upon Mr. S any management authority or the authority to make any representation, contract or commitment on behalf of Weider.

- In consideration of Oak's agreement to furnish Weider with Mr. S's consulting services pursuant to Section 2.1, Weider (i) will pay Oak a percentage of the net print advertising revenues...

- For each calendar year during the term, Weider will pay Oak a cash amount equal to 1 percent of the net print advertising revenues for such calendar year; provided, however, that in no event shall such 1 percent advertising payment be less than $1,000,000 in any full calendar year.

- The advertising payment will be paid to Oak as follows: (i) $ 250,000 each March 31, June 30, September 30 and December 31 during the Term commencing on March 31, 2004 ... and (ii) any remaining balance of the 1 percent advertising payment due to Oak in a calendar year (i.e. the amount, if any, by which the 1 percent advertising payment exceeds $1,000,000 for such calendar year) within ninety (90) days after the end of such calendar year.

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Source: SEC filing, American Media Inc.

Conflict in Schwarzenegger magazine deal unclear

The Associated Press

http://www.bakersfield.com/state_wire/story/5585729p-5558389c.html

Here's a look at some of the legal questions surrounding Gov. Arnold Schwarzenegger's financial arrangement with several fitness magazines:

Q: What does state law say about conflicts of interest for legislators and the governor?
A: In a statement issued Thursday, the California Fair Political Practices Commission said the governor, like any other public official, is prohibited under the Political Reform Act from making, participating in making or influencing any decision that will have a foreseeable material financial effect on a source of income. Each of these factors is determined on a case-by-case basis under the law and FPPC regulations. The governor also must publicly disclose his financial interests on his annual statement of economic interests.

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Q: What must lawmakers and the governor disclose on their financial disclosure statements?

A: Officials must disclose all income greater than $500 from entities doing business in California. But they only have to designate a range of income. For instance, Schwarzenegger needed to merely disclose that he was receiving more than $100,000 from American Media Inc., which publishes magazines including Flex and Muscle & Fitness. A Schwarzenegger spokeswoman said the governor has disclosed all his financial holdings.

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Q: What does state law say about outside income for lawmakers and the governor?

A: It is permitted, with no limits, if it is properly disclosed. Bob Stern, president of the Center for Governmental Studies in Los Angeles, said he knows of no other modern governor receiving outside income, particularly from an industry that could be affected by legislation under consideration.

"It seems to me if this isn't covered in the conflict of interest laws, then there's a big hole in the conflict of interest laws," said Bruce Cain, a University of California, Berkeley political scientist. "The intent of the law was to cover precisely these kinds of activities. ... You're not supposed to have anything that can compromise your objectivity."

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Q: What does state law say about lawmakers or the governor holding outside jobs?

A: California law allows elected officials to keep outside jobs, although there are limitations on what several experts defined as incompatible activities. According to state law, "No member of the Legislature, state elective or appointive officer or judge or justice shall, while serving as such, have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity, or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest and of his responsibilities as prescribed in the laws of this state."

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Q: Is there a method for a governor to recuse himself from signing or vetoing a bill?

A: No. If he doesn't act, the bill automatically becomes law. Stern and others suggested the only way to avoid a potential conflict of interest would be for Schwarzenegger to physically leave the state and let Lt. Gov. Cruz Bustamante act in his place.

The governor's office denies any conflict of interest in the governor's veto last year of a bill by Sen. Jackie Speier, D-Hillsborough, that would have restricted the use of performance-enhancing substances in high school sports. Stern said that may be legally correct because the bill was aimed at an entire industry and didn't benefit or harm any particular individual or company.

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On the Net:

Political Reform Act: http://www.fppc.ca.gov/Act/2005Act.PDF

Schwarzenegger Slammed for Fitness Fortune

By TOM CHORNEAU - AP

http://apnews.myway.com/article/20050714/D8BBFCFO0.html

SACRAMENTO, Calif. (AP) - Gov. Arnold Schwarzenegger came under fire Thursday for accepting millions of dollars from fitness magazines in a consulting deal that critics say represents a clear conflict of interest.

Schwarzenegger is being paid at least $5 million over five years to serve as a consultant for several magazines published by American Media Inc., including Flex and Muscle & Fitness, according to a Securities and Exchange Commission filing Wednesday.

The publications derive much of their profit from advertisements for nutritional supplements. Last year, Schwarzenegger vetoed a bill seeking to crack down on the use of performance-enhancing substances in high school sports.

The bill's sponsor, Democratic state Sen. Jackie Speier, called on Schwarzenegger to sever his ties with the publisher.

"The governor of the state of California makes some important decisions every day. Today, he has to make a decision about a conflict of interest - his own," Speier said during a Capitol news conference.

A spokesman for the governor defended the arrangement, saying Schwarzenegger has had dealings with the magazines for more than three decades. "There is no technical conflict," spokesman Rob Stutzman said.

He said the arrangement was fully disclosed last spring when Schwarzenegger announced he would become executive editor of the two magazines. The governor also filed a financial report with the state saying he was being paid, although the filing did not specify the amount.

Stutzman said the business relationship did not create a conflict because Schwarzenegger had no contact with the advertisers. He added that Schwarzenegger has been a proponent of dietary supplements since his days as a bodybuilder.

The contract between Weider Publications, a subsidiary of American Media, and Schwarzenegger's production company, Oak Productions Inc., states Schwarzenegger will receive 1 percent of the magazines' advertising revenue each year for five years. The payment will be no less than $1 million a year but could reach much higher, according to the contract.

The governor does not accept his $175,000 annual salary from the state, and California law allows elected officials to keep outside jobs.

"He has broken his trust to the people by vetoing legislation to protect young people from dangerous supplements without ever telling us that he is earning millions of dollars from these companies," said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Schwarzenegger writes monthly columns for Muscle & Fitness and Flex, and last year announced that he had agreed to serve as executive editor for both magazines.

At the time of the announcement, Schwarzenegger said he would take a salary that was "petty compared to the movies." The magazines also agreed to donate $250,000 a year to the California Governor's Council on Physical Fitness.

The SEC filing, which refers to Schwarzenegger as "Mr. S," also shows that American Media is paying $100,000 a year for five years to the Arnold Classic, an annual bodybuilding competition in Ohio.

The bill that Schwarzenegger vetoed last year would have required high school student athletes to pledge not to use performance-enhancing substances, banned some substances and barred supplement makers from sponsoring school events.

In his veto message, Schwarzenegger said key parts of the bill were unclear and that it was focused erroneously on dietary supplements rather than on steroids, which he has acknowledged using during his bodybuilding career, when they were legal.

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Associated Press Writer Beth Fouhy in San Francisco contributed to this report.

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