You probably don't know Ken Lowe. Why should you? He's the CEO of Scripps Network Interactive (NASDAQ:SNI), a five-year-old entertainment holding company that tends to keep clear of controversy. Or at least it used to.
Scripps, you see, is 70% owner of the Food Network, which says it won't renew its contract with celebrity chef Paula Deen when it expires at the end of this month. Deen is best known for cooking heavy Southern dishes on her shows. She also has restaurants and a media empire worth tens of millions, according to Bloomberg.
But now she's come under fire for using a racial slur in years past. In a deposition given in a racial and sexual harassment suit filed by a former employee, Deen admitted to using the "N-word." Workers apparently also told racial jokes on her watch, The Wall Street Journal reports.
But now that empire is crumbling, in part because of a defensive video posted to YouTube in lieu of a canceled appearance on NBC's Today show. Deen has since offered a tearful apology on the show, but sponsors aren't buying it. Among the biggest names to drop her recently are Target (NYSE:TGT), which has carried cookware bearing the chef's name. "We have made a decision to phase out the Paula Deen merchandise in our stores as well as on Target.com," a spokesperson told Bloomberg.
Sears Holdings (NASDAQ:SHLD) cut ties Friday, telling The Huffington Post that it decided to "phase out all products" tied to Deen's brand. Here's a more complete accounting of those who've dropped the kitchen diva:
- Smithfield Foods
- Home Depot
- Caesar's Entertainment
- Novo Nordisk
- J.C. Penney
The simple advice Paula Deen should have heeded
Warren Buffett has seen all this before, having helped rebuild Salomon Brothers after a management scandal tarnished the broker.
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently," Buffett has said. Deen would have done well to remember that. Although, interestingly, Amazon.com (NASDAQ:AMZN) already ranks her forthcoming book -- "Paula Deen's New Testament: 250 Recipes, All Lightened Up" -- as its No. 1 best seller. At least someone is profiting from this mess.
But that's an exception. Buffett is right: Reputation is everything, and associating with a damaged celeb such as Deen is tantamount to damaging the brand. Take heed, investors. Know the ambassadors behind the brands you're investing in. Know what they sell, and how much they account for.
In this case, Deen's implosion isn't on the scale of what might have happened to Nike were Michael Jordan to suffer a scandal at the height of his stardom. Deen's star doesn't shine that bright, and most of her sponsors are already well-diversified businesses.
Call it a warning shot. Right now, it's Deen and not investors that are feeling the pain. We might not be so lucky next time.
Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's Web home and portfolio holdings, or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.
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