Schwarzenegger in $5m 'Conflict of Interest' Row

18 July 2005

Governor Arnold Schwarzenegger, actor and Republican head honcho of California, America's richest and most populous state, attracted much applause for his refusal to draw a state salary following his election in 2003.

And it was churlish of the governor's opponents to point out that his ostentatious gesture was affordable by one whose personal wealth is estimated at over $200 million (€166m; £114m).

But Schwarzenegger's expensively-won image of altruism is now in danger of becoming musclebound.

It was reported Thursday in The Los Angeles Times and The Sacramento Bee that the seemingly selfless governor had quietly entered into a contract with a group of fitness magazines that not only will net him upward of $5m but could also pose a conflict of interest.

The deal, with American Media was signed by Schwarzenegger in November 2003, a few weeks after his election and just two days before being sworn into office. The governor's chore? To act as executive editor of Flex and of Muscle & Fitness, two magazines devoted to bodybuilding.

Although there appeared to be no direct flow of cash into Schwarzenegger's wallet, American Media openly agreed to contribute $250,000 a year to a nonprofit organization set up by the former bodybuilder to promote the health benefits of sports and exercise.

However, it emerged last Wednesday from an American Media financial filing that that this (and other sums) were directly linked to advertising revenues in those magazines - and that a very substantial proportion of those revenues are derived from suppliers of performance-enhancing dietary supplements.

This news proved manna from heaven for Schwarzenegger's political opponents, who recall that last year the governor vetoed a bill that would have restricted the use of such dietary delights by high school athletes.

According to the governor, he nixed the bill only because its emphasis was on restricting dietary supplements, most of which he said were safe - as opposed to illegal steroids.

The upcoming August issue of Muscle & Fitness reports that Schwarzenegger joined American Media's ceo David Pecker at a meeting in Columbus, Ohio, in March to organize a new lobbying group to preserve high school access to dietary supplements.

The filing revealed that under the five-year contract, Oak Productions, a company owned by the governor, will receive 1% of the net print advertising revenues of Weider Publications [the AM unit that publishes the two beefcake magazines]. This is subject to a minimum payment of $1 million a year.

Schwarzenegger has also been granted 'phantom equity,' a way of sharing in the growth of the value of the company. The equity could equate to 1% of the company's value, stated at the time of the contract as $520 million.

Data sourced from New York Times; additional content by WARC staff