Wrapping up Costco’s options case…

October 25, 2010

Best Buy (BBY) filed its proxy earlier today and one of the more interesting things disclosed in the long list of related party transactions was the company’s growing relationship with McDonald’s (MCD), where Best Buy director Matthew Paull is CFO.

Two years ago, the two companies entered into a co-marketing arrangement as part of McDonald’s annual Monopoly game. Customers who bought a large fries or chicken sandwich were guaranteed to get at least $1 worth of "Best Buy Bucks" and had a 1 in three chance of winning $3, according to this blog, where people discussed strategies for cashing in Best Buy points. Last year, the program cost Best Buy $6.1 million, a significant increase over the $1.8 million in fiscal 2005. Oddly enough, Best Buy provides few details on the program on its own website — a quick search of earlier filings and Best Buy’s website yields nothing.

Of course, that’s not the only interesting related-party transaction in the proxy. Phoenix Fixtures, a company run by Best Buy founder Richard Schulze’s brother, continued to profit from the relationship, selling $18 million worth of merchandise to Best Buy, down from $20 million in fiscal 2005. And the amount spent on leasing jets from a company controlled by Richard Schulze increased to $456K from $380K in fiscal 2005. There’s also the $1 million a year Schulze continues to receive as non-executive chairman of Best Buy, meaning that he doesn’t appear in the summary comp chart, even though his salary is higher than all but CEO Brad Anderson and the company doesn’t disclose the "business-related expenses" it reimburses Schulze.

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