According to the account in Forbes, Schnatter was on a call with Laundry Service, a marketing agency, and was asked how he planned to manage future public relations flare-ups. "Colonel Sanders called blacks n--s", Schnatter said, before complaining that Sanders never faced public backlash.
He also reportedly said that when he was growing up in IN, people would drag black people from trucks until they died.
Although Mr Schnatter's comments were apparently meant to illustrate his opposition to racism, several people on the call said they found his remarks offensive.
After Forbes magazine reported the gaffe, Schnatter said it was true he had used the "inappropriate and hurtful" word. Forbes reported he did apologize for his use of the slur to them in an emailed statement, late on Wednesday. "Simply stated, racism has no place in our society", he said.More news: SHAMELESS: Democrat Says Strzok Should Receive PURPLE HEART for Anti-Trump Texts
Hours later, the national pizza company he'd founded in the 1980s announced in a brief statement that Schnatter had quit the board.
John Schnatter quits as chairman after using racial slur during a conference call on how to handle controversial situations. In January, he stepped down as the CEO of the company after the controversy.
In an email statement, Schnatter confirmed the allegations. Schnatter caused an uproar in November 2017 when he waded into the debate over national anthem protests in the NFL and partly blamed the league for slowing sales at Papa John's. Following Schnatter's comments, he resigned as CEO but remained chairman of the board, and the chain's official sponsorship ended, replaced by Pizza Hut.
Louisville plays its home games at Papa John's Cardinal Stadium, but players are pushing for a name change.
Papa John's shares fell almost five per cent Wednesday on the NYSE after the Forbes report, closing at $48.33.