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Fact Check: ABC15 Investigators look into allegations made in two ads attacking Doug Ducey

Fact Check: ABC15 Investigators look into allegations made in two ads attacking Doug Ducey
Posted at 5:59 PM, Sep 26, 2014
and last updated 2014-10-27 20:12:40-04

Two different ads have been released in recent weeks trying to sway voters’ opinions of Republican gubernatorial candidate Doug Ducey.

AD ATTACKS COLD STONE RECORD

Ducey was the CEO of Cold Stone Creamery from 1995 to 2007, when the company branched out into more than 1,000 franchises nationwide. And, his record at Cold Stone has been a cornerstone of his campaign.

An ad paid for by Democratic-leaning Restore Arizona’s Future PAC calls into question that record by bringing up claims made by some very unhappy franchisees when Ducey ran for state Treasurer in 2010.

“What if you lost everything? Went bankrupt?” the ad asks. “Lost your home, your life savings?”

First of all, the photos used in the ad were stock images of generic people and not actual franchisee owners, as the Arizona Republican Party pointed out

The ad goes on to say, “that’s what happened to a group of Cold Stone Creamery franchise owners.”

This refers to a group of four former Cold Stone franchise owners who spoke out at a press conference about Cold Stone and Doug Ducey during the Treasurer’s race. 

“They said company president Doug Ducey used ‘dishonest business practices’ luring buyers with ‘inflated profit projections,” the ad continues.

This is, in fact, exactly what those former franchisees said at a press conference covered by the Arizona Capitol Times. 

There was also a campaign commercial when he ran for Treasurer with the same allegations. 

Those franchisees – along with many others on franchisee websitesand blogs – accused Cold Stone of giving them misleading profit margins, compelling them to use expensive suppliers and making them eat the costs of the company’s two-for-one coupons.

The ad also accuses Ducey of pushing those franchisees into bankruptcy when profits didn’t come, “clearing the path for new buyers.”

The Ducey campaign told ABC15 the majority of the franchises succeeded. The ones that failed were a result of the economic recession of 2008, the campaign said, after Ducey and his partners sold the company in late 2007.

“The fact is, franchisees are independent business owners, yet the overwhelming majority of Cold Stone Creamery’s hundreds of franchisees were successful and that’s something to be proud of,” the campaign said in a statement. “Like many businesses, and individuals for that matter, Cold Stone was affected by the economic crash.”

See the Ducey campaign’s full statement below.

The campaign also provided a letter from Kevin Blackwell, CEO of Kahala when they purchased Cold Stone from Ducey and his partner, reiterating this point.

The ABC15 Investigators have spoken with some former franchisees whose Cold Stone Creameries failed and some of them went into bankruptcy. Who’s to blame is up for debate, but there are some statistics that show these weren't the only Cold Stone franchisees to fail.

According to franchise research group BlueMauMau.org, Cold Stone franchisees failed at a rate of 11 percent from 2000 to 2007, which was about the time Ducey sold the company to Scottsdale-based Kahala Corp. 

Failure here means that franchisees who borrowed money from the federal government’s Small Business Association (SBA) to start their franchise defaulted on those loans.

In 2009, BlueMauMau reported that failure rate was 20 percent. Then, in 2011, it was 37 percent.  And, in the decade leading up to 2012, the site reported that rate went up to 42 percent

“Ducey made a fortune,” the ad continues, “They lost everything.”

In 2008 – years before Ducey ran for office – the Wall Street Journal reported about issues with Cold Stone franchises.

The Journal reported that in 2007 Cold Stone closed 100 of its approximately 1,200 stores. In 2008, they found that one Cold Stone website had 303 stores for sale of their nearly 1,400 stores.

And, earlier this month, the Wall Street Journal reported that Cold Stone is still one of the 10 worst franchises in the country when it comes to SBA loan defaults.

According to the Journal, as of last year, almost 30 percent of Cold Stone franchisees defaulted on their SBA loans. Taxpayers footed the bill for those failures to the tune of $34 million, according to the Journal. 

AD ATTACKS DUCEY ON EDUCATION

The latest anti-Ducey attack ad comes from his opponent Fred DuVal's campaign, Fred for Arizona.

Along with similar Cold Stone allegations, this ad also goes after Ducey for his support of appealing a court decision that would force the state to pay more than $1 billion back to Arizona schools.

“Ducey’s cheating our kids,” the ad says, “supporting devastating cuts to education the courts ruled illegal.”

Last year, the state Supreme Court ruled the state has to pay up to $1.6 billion to Arizona’s schools to make up for years of insufficient funding during the economic recession.

Like state Republican legislative leaders, Ducey said he wants to appeal the decision to buy time for the next governor to reform the state's failed K-12 finance formula, the Ducey campaign said.

But, the DuVal campaign told ABC15 the state should pay up and “reinvest in our children’s schools.”

The ad also attacks Ducey for his economic plan, which aims to lower the state’s income tax and, eliminate it, if possible. Ducey’s campaign told ABC15 he wants to do this because Arizonans deserve to keep more of what they earn. 

But, DuVal’s campaign says this will only benefit millionaires, like Ducey, and would eliminate 40 percent of the state’s general fund.

See the answers to every question we asked both campaigns about these ads below.

 

Q&A with Ducey campaign:

The ad by Restore Arizona’s Future brings up criticisms lodged at Mr. Ducey’s campaign when he ran for state Treasurer in 2010 by franchisees of Cold Stone Creamery who felt they had been misled by the company and lost their life savings in the venture. What is the Ducey campaign’s response to these allegations?

It is a sad situation when any small business fails.  That’s why, as governor, one of Doug’s highest priorities is to create a climate where Arizona businesses of all sizes have their best opportunities to succeed.  Doug believes in free enterprise – where government can get out of the way and help create opportunities for success, but that success is not guaranteed.  The fact is, franchisees are independent business owners, yet the overwhelming majority of Cold Stone Creamery’s hundreds of franchisees were successful and that’s something to be proud of.

According to the Arizona Capitol Times, Cold Stone was second in the country in defaults on Small Business Association loans in 2008, just after Mr. Ducey sold the company. Does the Ducey campaign believe this represents a problem with the franchise model the company presented or the health of the Cold Stone brand?

The fact is, Doug and his partners sold Cold Stone to Kahala at the end of 2007.  Shortly afterward, an economic catastrophe occurred – the meltdown of 2008.  Like many businesses, and individuals for that matter, Cold Stone was affected by the economic crash.

In spite of the circumstances of 2008, Cold Stone’s brand is still alive and well.  There are nearly 1,500 stores operating in 31 countries today and Arizonans can still head down to their local scoop shop to experience Cold Stone for themselves.

But don’t take it just from him – take it from the president of Kahala at the time of sale, Kevin Blackwell, who said, “Cold Stone was, and is, a terrific company and I was, and am, proud to have been associated with the Cold Stone brand… Doug built Cold Stone into a great company and would make a great Governor for Arizona.”

Take it from Michael Serruya, who recently purchased Cold Stone Creamery, who said, “Cold Stone Creamery has an excellent culture, an emphasis on serving customers with the highest quality of customer service and a powerful and unique in-store experience. All of these exceptional attributes are ones that started with Doug Ducey and have endured well in the almost seven years since he originally sold the company to Kahala.”

On September 10, 2014, the Wall Street Journal found Cold Stone Creamery is still one of the 10 worst franchises brands in the country when it comes to default rates on SBA loans. What is the Ducey campaign’s response to this analysis?

People take great risks to grow businesses – that’s part of the American dream.  Franchisees are independent business owners who are responsible for securing any loans and funding they may need, whether from the SBA or another lender – and the majority of them are still succeeding today.  As governor, Doug will focus on creating opportunities and a growing economy to give all small business owners the opportunity to succeed.

The ad says that Mr. Ducey supported the millions of dollars in cuts to education by the Arizona state legislature during the Great Recession. A judge recently ruled that the state must repay up to $1.6 billion to the state’s school districts for under-funding. What is Mr. Ducey’s position on those cuts?

Doug supports an appeal of the recent court ruling, but mostly because it buys some time for the next governor to look at the bigger picture and pinpoint where we can actually reform and restructure our failed K-12 finance formula.

The conversation cannot be just about the amount of money we’re spending – it’s also about how we spend it.  We must focus on delivering real results that bring real opportunities for our children.  Doug will work to get money where it belongs – supporting teachers and equipping classrooms with new technologies – as opposed to the administration and bureaucracy.  Doug’s view of education is that there should not be winners and losers in our schools.  He is committed to making sure that more education funds go into the classroom to help teachers teach and students learn.

To be clear, Doug believes that our schools must be adequately funded and he is committed to not making further cuts to K-12 education. With a FY2015 budget deficit projected to be more than $200 million, it’s critical that this situation be handled in a way that will not bankrupt the state.

What is Mr. Ducey’s plan to fund and grow Arizona’s schools?

When it comes to educating students, there shouldn’t be winners and losers.  Every student deserves an excellent education that creates real opportunities.  Our responsibility is to prepare them with the skills they need for life.  It’s not about how much we spend; it’s whether we deliver results.

For the past 10 years, Arizona school districts have decreased the percentage of resources allocated in the classroom.  Doug will work to get money where it belongs supporting teachers and students in the classroom.

Today’s best public education reforms happen in states, driven by the conviction and idealism of parents and teachers.  Arizona has some of the best schools in the nation, with three of the top 10 public high schools.  No other state has that bragging right.  Doug wants to create opportunities for Arizona’s children by helping our best schools expand, replicate their practices statewide and making sure fewer dollars are lost to overhead costs and instead go directly into the classroom supporting teachers and equipping classrooms with new technologies. 

The ad also claims that Mr. Ducey supports tax cuts for millionaires. What is Mr. Ducey’s plan to cut taxes – and who will receive those cuts?

Doug has pledged to work on lowering the state’s income tax with the goal of driving it as close to zero as possible.  Arizonans are hardworking taxpayers.  Doug thinks they should be able to keep more of what they earn, and he will work equally as hard to make it so.  But it won’t happen overnight – it will require a growing economy, a term or two as governor, a plan and a shrinking government.  It’s a big idea, but one worth working toward.

 

Q&A with DuVal campaign:

The ad accuses Mr. Ducey of “cheating our kids” by supporting the millions of dollars in cuts to education by Arizona’s state legislature during the recession, which a judge recently ruled illegal. Does the DuVal campaign believe those cuts were illegal?

The cuts were illegal, the Arizona Supreme Court settled that question one year ago this week. Now is the time to follow the court’s direction and reinvest in our children’s schools. Fred has said that he wouldn’t continue the delays or appeals, and would start reinvesting in our schools now. Doug Ducey wants to continue the appeals at the expense of our children’s education.

How does the DuVal campaign propose to pay back the $1.6 billion to Arizona school districts?

We’ll pay for the overdue payments to Arizona’s schools by using the Rainy Day Fund, finding efficiencies in state government with procurement reform, and maximizing the return on the sale of state trust lands.

The ad says Mr. Ducey, if elected governor, would cut taxes for millionaires like himself. Has Mr. Ducey said he would do this? How does the DuVal campaign support this claim?

According to the Arizona Republic, Doug Ducey supports eliminating the income tax. [Arizona Republic, 2/19/14] And according to 12 News, 40% of the savings from Doug Ducey's radical tax giveaway plan would go to the richest 3% of households in Arizona. Meanwhile, just 9% of the savings from his plan would go to the majority of Arizona households. [The Arizona We Want Institute Gubernatorial Forum, posted 6/10/14] Doug Ducey has cooked up a radical tax giveaway plan to benefit millionaires like himself, and he’s trying to sell regular Arizonans a bill of goods.