Is it true? Has Martha been given a strawberry-scented note and told that she "just doesn't fit in?"
CNN is reporting that GE's (NYSE:GE) NBC has taken a pass on signing up for another year of Martha Stewart's struggling copycat reality show "The Apprentice: Martha Stewart." Others told CNN that the show was always destined to be a one-time thing, but it's easy to pretend the fait accompli was the plan all along. We're all smart enough to know that if the show had been a hit, it would have earned another run.
What ought to chap the knuckles of shareholders in Martha Stewart Living Omnimedia (NYSE:MSO) isn't just that this show flopped -- though that always looked like the end result, especially after NBC basically turned it into a sacrificial lamb by airing it against Lost, one of the biggest hits on Disney's (NYSE:DIS) ABC. No, what really ought to get investors going is the memory of how this deal was structured to enrich no one but Martha and producer Mark Burnett, at shareholder expense. And the two of them were likely to do just fine no matter how things turned out on the tube.
Shareholders were always exempt from the show's financial success, if any, because Martha Stewart Living Omnimedia had no financial interest in the show. But, to add insult to injury, though they had no stake in any potential upside, Martha's shareholders paid her a minimum of $500,000 to do the show. They also handed producer Mark Burnett 2.5 million warrants at a strike price of $12.59, more than half of which the company has already vested. That means they're deep in the money -- to the tune of a net possible gain of $6.5 million, even after the recent slide -- while Burnett's show has already failed. (Yes, technically he's consulting on other Martha projects, but this was the reality guru's major Martha deal.)
Let's simplify it: Martha and Mark Burnett created a failure. Shareholders paid them for it anyway. I'm trying to come up with a better adjective for how this looks to me, but the only thing that comes to mind -- and is suitable for print -- is crooked.
I say "shareholders" paid for this failure, because that's the truth, in the end. But those making the decisions on behalf of shareholders, the board and management, are the ones who deserve the blame. Will they get any? I doubt it. They might even argue that the show was a success by bringing attention to their company. Read the proxy statement and you'll see years of hefty bonuses for management, despite the calamitous operating results that continue, as evidenced by accelerating losses and continued lousy sales of the firm's wares at Sears Holdings' (NASDAQ:SHLD) Kmart.
The sad truth is that this is business as usual for Martha Stewart. Investors come last here, which is why I'm always surprised that they sign up in the first place.
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Seth Jayson wonders what kind of shareholder wealth transfer programs MSO will come up with next. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
