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Fatburger Corporation - Magic Johnson Sells Controlling Interest in 2003

Magic Johnson Sells Controlling Interest in 2003

By the time the Colorado Fatburger opened, however, Magic Johnson had already taken steps to lessen his involvement with the chain, selling a majority interest for an undisclosed amount of money in 2003 to an investment group led by Warlick. Johnson and his partners did, nevertheless, retain a minority, non-voting interest. According to the Los Angeles Daily News, "Friction between the management and Johnson's investment team led them to part ways.… The ambitious plans never materialized, with the chain adding only three restaurants while Johnson Development held it. Ken Lombard, president of Johnson Development, admitted, 'We just found too many times we weren't in agreement with where we had to go.'" According to the Daily News, "Delays in selecting real estate contributed to the slow roll-out, but [Warlick] said deals were in place to open 84 stores in 17 states." Expressing his frustration, Warlick said, "We can't afford to wait 100 years to exploit a hot 50-year-old concept." Johnson Development considered buying out Warlick, but in the end decided instead to accept his offer. Much of the difference between the two parties Warlick related to brand loyalty: "We prefer to control our own brand.… Magic Johnson is a brand itself, and with celebrity groups, their interest is controlling their brand." However, according to the Daily News, "Industry watchers conjectured that financial reasons played into Johnson's decision to sell.… 'I can only think there's one reason to sell: It's not generating the kind of return on (Johnson's) investment he's accustomed to,' said Richard Martin, managing editor of the Nation's Restaurant News. 'When you have people threatening to sue McDonald's over obesity, it's not the best time to be called Fatburger.'"

Warlick made it clear that he had no intention of changing the Fatburger name or formula. Warlick vowed, "We're not going into the salad business, we're staying with what got us here in the first place." Although Fatburger would clearly miss the financial muscle of Magic Johnson, it had a new backer in Portland, Oregon-based Fog Cutter Capital Group Inc., which provided the cash needed to complete the buyout and pledged additional financing to build Fatburger's infrastructure and support management's expansion plans.

There was clear evidence that Fatburger was indeed making a strong effort to establish a national presence. In 2003, the chain moved into Florida, and in 2004 entered the market in Pittsburgh, Pennsylvania, as well as in Georgia, Louisiana, and New Jersey, within the New York City metropolitan area. Moreover, the chain had commitments for the openings of 200 stores in 22 new markets by 2008. This expansion notwithstanding, it remained to be seen whether the long-held promise of Fatburger would finally be realized, more than a half-century after it was founded as a three-stool hamburger stand.