Schnatter then resigned as chairman of the company and from his seat on the University of Louisville's governing board.
The decision was made by top executives but details of the change are still being worked out, according to a person inside the company with knowledge of the decision who wasn't authorized to speak publicly.
Schnatter has always been the face of the brand, and the company has acknowledged in regulatory filings its business could be harmed if Schnatter's reputation was damaged.
Now that he's not the chairman of the board of the company he founded, Schnatter's face is disappearing from all of Papa John's marketing materials. The pizza chain said Friday there are no plans to change its name. Take, for example, one from the summer of 2016, when Schnatter's usual red Papa John's shirt was replaced with a "Ghostbusters" jumpsuit in a 30-second TV spot and on a movie-themed pizza box.
On Wednesday, Schnatter acknowledged the truth of a Forbes story that said he used the N-word during a discussion about public relations with the company's outside marketing agency in May.
The deal provides that if he leaves the company, Schnatter can rename the building.
Schnatter had used the slur during a media training exercise, Forbes said.
Louisville President Neeli Bendapudi addressed a letter to the "U of L Family" on Friday that declared U of L would rename the football stadium and remove the name of Papa John's founder John Schnatter from the school's Center for Free Enterprise and its College of Business, effective immediately. When asked how he would distance himself from racist groups, Schnatter reportedly complained that Colonel Sanders never faced a backlash for using the word.
Major League Baseball also suspended its "Papa Slam" promotion with the company - which provided fans a 40 percent discount on online orders the day after a grand slam was hit during a major league game - Yahoo Sports reported on Wednesday.
Papa John's International Inc. began operations in 1984 and had more than 5,200 locations globally.