Ackman-Herbalife Saga to Hit Theaters With Distribution Deal

(Bloomberg) -- The documentary film “Betting on Zero,” which chronicles hedge fund manager Bill Ackman's attempt to destroy Herbalife Ltd., is going to be seen by a lot more people thanks to a distribution deal.

The film will reach theaters early next year via Gunpowder & Sky Distribution, according to a statement. The movie, which debuted in April at the Tribeca Film Festival, received some free publicity on Sunday when it was highlighted by HBO's “Last Week Tonight with John Oliver” show during a diatribe against multilevel-marketing firms such as Herbalife. After the theatrical release, “Betting on Zero” will be available through video-on-demand.

Herbalife, which Ackman accuses of being a pyramid scheme, has pushed back against the documentary. It created a website that criticized the film after its Tribeca debut. Last month, a lobbying firm working for Herbalife bought half the tickets for a screening -- in what the filmmakers viewed as an attempt to keep people from seeing it.

Greater exposure for the film may create fresh headaches for Herbalife by spreading Ackman's allegations to a wider audience. In addition to reiterating Ackman's claims, the documentary tells the stories of alleged victims from the Latino community, a key source of Herbalife's growth.

Since the film's festival debut, director Ted Braun has added information about Herbalife's July settlement with the Federal Trade Commission, an accord that included a $200 million fine. There's also a new clip during the credits of FTC Chairwoman Edith Ramirez criticizing Herbalife at a press conference.

A spokesman for Herbalife declined to comment.

Stock Gain

Ackman began his anti-Herbalife crusade with a $1 billion bet against the company in late 2012. But the shares have increased over the past four years -- including a 2016 gain of 2.5 percent through the end of last week -- bringing it to $54.96. Herbalife traded in the low $40-range when he first announced his short position. The shares fell as much as 1.1 percent to $54.34 on Monday.

The distribution deal comes as Herbalife is attempting to comply with the FTC settlement, which followed an investigation that Ackman spurred. The company also is facing slowing sales in China, one of its biggest markets, and longtime Chief Executive Officer Michael Johnson is stepping aside next year.

The FTC accord calls for changes to how Herbalife compensates the people who sell its weight-loss shakes and energy drinks in the U.S. The FTC also said Herbalife and its distributors have to stop making misleading claims about how much money potential recruits are likely to earn. Ackman, founder of Pershing Square Capital Management, said these changes will cause its downfall. But Herbalife is confident it can comply by the deadline in May and keep growing.

Multilevel-Marketing Critic

“Betting on Zero” was financed by John Fichthorn, co-founder of Dialectic Capital Management. He remained anonymous until August when he made his role public, saying that the lack of disclosure was hurting the film's ability to sign a distribution deal. Fichthorn is a critic of multilevel marketing firms like Herbalife.

Fichthorn has bet against Herbalife's stock in the past, but not since production on the film began, he said. Braun, the director, said he had complete independence from the financiers and Ackman in making the film. He also asked Herbalife to be part of the movie, but the Los Angeles-based company declined to participate.

This battle boils down to whether there is legitimate demand for Herbalife's products by actual consumers, which is the FTC's test for a pyramid scheme. Ackman said there isn't such demand. He claims the company's revenue is derived from sales goals it sets for independent contractors, who must buy products from the company. Few of the contractors achieve those rewards, Ackman contends.

‘Unfair' Structure

While the FTC didn't weigh in on whether Herbalife is a pyramid scheme, it did say the company's compensation structure was “unfair” because it rewards distributors for recruiting others to join and purchase products “rather than in response to actual retail demand for the product.” The settlement puts the onus on distributors to provide documented proof that they have legitimate retail customers.

Herbalife has said there is real demand, although it hasn't provided much proof. The company sells products to its distributors and says it can't be sure what happens after that. The company has said it's rolling out systems, including a mobile application, to track purchases this quarter.

Gunpowder & Sky has distributed many documentaries, including the Oscar-nominated film about street artist Banksy called “Exit Through The Gift Shop.”

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Kevin Orland, Mark Schoifet