Negotiating Franchise Agreements

19% of franchisees now control 59% of all franchised locations in the United States. Read that again. One in five franchise owners operates more than half of the units in the country. Multi-unit and multibrand operators are consolidating at a pace we have not seen before, acquiring underperforming locations, negotiating from a position of leverage, and building portfolio-scale operations. This changes the franchise development conversation entirely. If you are a franchisor still selling to first-time single-unit buyers the same way you did five years ago, your pipeline is about to look very different. The buyer profile has shifted. The questions are harder. The due diligence is deeper. And the expectations around support, technology, and transparency are significantly higher. Multi-unit operators do not want a pitch. They want data. They want infrastructure. They want to see that your brand can support 10, 20, 50 locations under one ownership group without the system breaking. Franchise development teams that cannot speak that language are going to lose deals to the brands that can. The market is consolidating. Your development strategy needs to reflect that. Does it?

A few weeks ago I wrote about Blackstone already positioning to exit Jersey Mike's, barely a year into their acquisition. Today, I'm watching Roark Capital sell Nothing Bundt Cakes to KKR after just five years. At a reported $2 billion valuation, it's a clean win for Roark. But I keep coming back to the same question I always ask: what does this mean for the franchisees who are still in the middle of their 10-year agreements? This isn't an indictment of private equity. Roark grew Nothing Bundt Cakes from 390 locations to over 640 in four years. That's real operational growth, and unit-level revenue of roughly $1.4 million tells a healthy story, for now. But here's what gets lost in the deal announcement: Roark's investment horizon and a franchisee's investment horizon are fundamentally different animals. PE firms buy, build, and sell. Franchisees buy, operate, and live there. One party has multiple liquidity options and a diversified portfolio. The other has a lease, a loan, and their life savings tied to a single brand they no longer control. That brand can change hands again. Leadership changes. Royalty structures get renegotiated. Marketing funds get reallocated. The system culture that attracted you on day one shifts. Most of the time, brand continuity holds and franchisees navigate the transition just fine. But sometimes it doesn't, and we've watched that play out in real time with Quiznos, The Little Gym, and the cascading struggles inside the Fat Brands portfolio. When the brand stumbles under new ownership, the franchisee doesn't get to exit cleanly at a 2x multiple. They're the ones left holding the lease. I'm not trying to sound like a broken record, and I'm not telling anyone to avoid franchising. What I am saying, what I say to every client before they sign, is that you need to understand what you're buying into. Not just the unit economics on day one, but the ownership structure, the PE firm's track record, and your own risk tolerance for a brand that may look different in year three than it did when you wrote the check. Franchising can be an excellent investment. But it is never a passive one. Know your brand. Know your franchisor. Know your exit before you enter. #franchiselaw #franchising #franchiseinvestment #businessstrategy #restaurantindustry

While you were watching sixes at Chinnaswamy, IPL franchises were quietly losing revenue It’s not just cricket economics It’s India’s biggest sports business model, hitting its first real stress test [1] Let’s look at the numbers Mumbai Indians: ₹737 cr → ₹697 cr (FY25), profit ₹84 cr RCB: ₹649 cr → ₹514 cr, profit ₹140 cr LSG: ₹694 cr → ₹557 cr, loss ₹72 cr Meanwhile, BCCI clocked ₹11,703 Cr in FY24 ₹8,744 Cr media rights ₹2,163 Cr franchise fees ₹758 Cr sponsorships ₹4,578 Cr shared with teams The league is richer. But teams are thinner. [2] Why it’s happening - Seasonality whiplash: Revenues split across March–May spill into two financial years; accounting timing shouldn’t move top lines by 20%+, yet it does. - Central-pool dependence: 70%+ of income for many sides flows from media rights and central sponsors, which is great in boom years, risky when shocks hit. - Uneven cost base: Older teams pay a % of income as franchise fee; new entrants carry heavy fixed commitments, so downturns bite harder. [3] The Online Gaming Ban Fantasy & RMG apps like Dream11, MPL, My11Circle were 40% of IPL ad spend in 2025 (~₹2,000 Cr) They weren’t just advertisers. They were front-of-jersey sponsors, central pool contributors, and top revenue drivers. The new bill banning money-based gaming apps = sponsorship black hole. Broadcasters, the BCCI, and franchises will all feel the impact. [4] The cascading economics (short to medium term) Broadcasters: ad yield compression → weaker future media bids → central pool shrinks. Sponsors: jersey/front-of-shirt inventory suddenly less liquid. Fan engagement: loss of fantasy-driven daily attention → lower viewership stickiness. Franchise valuations: re-rate risk if central annuity expectations change. [5] What smart franchises do next - Build a super-app → one place for content, commerce, ticketing, loyalty, and free-to-play games that deepen fan stickiness. - Operate like a studio → year-round docuseries, player stories, and skills content that can be monetised directly and licensed globally. - Expand merch beyond jerseys → lifestyle fashion drops, brand collabs, and global e-commerce to capture non-sports audiences. - Turn stadiums into 365-day assets → concerts, conferences, premium hospitality, and community events that unlock new revenue. - Reset the sponsor mix → shift from traditional jersey ads to data-backed partnerships with fintech, EVs, health, and tech brands. - Think global, not local → multi-league ownership that smooths seasonality, builds talent pipelines, and multiplies commercial upside. What this means is simple: Stop renting attention for two months; start owning communities all year.

‘California Legislature Increases Fast-Food Chains’ Labor Rates Without Proper Input From Franchisees’ Truly independent franchisee representation was not specifically included in negotiations pertaining to the new regulations approved by the California Legislature that includes raising minimum wages for fast-food chain restaurant workers to $20/hr in 2024 and up to $29/hr in 2029.  The closed room discussions that led to compromises between a select group of franchisors, Service Employees International (Labor) Union, the National Restaurant Association (NRA) and the International Franchise Association (IFA) will have a major financial impact on the profitability of restaurants combined with the higher price consumers will pay for menu-products due to the expected increase in labor costs.   According to the Article by Jonathan Maze, the National Owners Association (NOA - comprised of over 1,000 McDonald’s Franchisees) says this new legislation “will result in a devastating financial blow to California McDonald’s franchisees,” estimated at approximately $250,000 in lost cashflow per store according to the NOA.  The NOA is particularly concerned that the success of this legislation in California will lead to the proposal of similar measures in other states.    Franchisee Attorney Robert Zarco is quoted in the article saying, “This is a collective bargaining agreement where the required main employer (franchisee) is not present.”  Furthermore, the negotiators and other franchisors are, in this regard, potentially acting like a “joint employer” by effectively negotiating and controlling the wage increase amounts for franchisees who ultimately bear those higher costs as independent contractors, but were denied a seat at the table. The irony is that all fast-food franchisors will benefit from these higher prices since they are paid royalties and marketing fees (as well as rent in the case of McDonald’s) as a percentage of gross sales/revenues, irrespective of the reduced bottom-line profits to franchisees, says Zarco.   #franchiselaw #franchiseattorney #franchiselawyer #franchiselitigation #californiaregulations #franchisees #collectivebargaining #jointemployer #fastfood #franchisors International Franchise Association Franchise Times The Coalition of Franchisee Associations Litigation Counsel of America AAFD Haute Lawyer AAHOA

For decades, flying a major hotel brand flag was one of the easiest decisions an owner could make. The value proposition was clear. Distribution. Loyalty members. Brand recognition. Operational support. Lender confidence. Owners paid significant fees because the return was obvious. Lately, though, I've been hearing a different conversation. More owners are taking a harder look at their brand relationships, not because they suddenly want to go independent, but because the economics have changed. Franchise fees continue to rise. PIPs are becoming more expensive. Brand standards are getting more demanding. At the same time, owners are dealing with higher labor costs, rising insurance premiums, and increased borrowing costs. Eventually, every owner asks the same question: is the value I'm receiving today equal to the cost I'm paying tomorrow? These conversations rarely happen when everything is going well. They happen when a renovation is due, a refinance is approaching, an asset is being repositioned, or ownership is considering a sale. Those moments force owners to examine every expense, every partnership, and every assumption they've held for years. What I find interesting is that this conversation isn't only about numbers. It's about alignment. The strongest owner and brand relationships aren't built solely on loyalty programs and reservation systems. They're built on communication, trust, flexibility, and a shared understanding of what success looks like. When owners feel heard and brands continue creating measurable value, the partnership works. When one side feels like expectations keep increasing while value becomes harder to quantify, cracks begin to appear. The hotel industry isn't moving away from brands. Far from it. But I do think we're entering an era where owners will scrutinize brand relationships more carefully than ever before. The question is no longer, "Which flag should we fly?" The question is, "Does this flag still create enough value for where this asset needs to go next?" I'd love to hear what owners, operators, and brand leaders are seeing in the market right now. --- If you like the way I look at the world of hospitality, let's chat: scott@mrscotteddy.com

For a long time, tariffs sat in the background of deal analysis. They affected cost structures, supply chains, and competitiveness, but they were largely treated as a commercial input. That assumption has shifted. Recent litigation in the US has also called into question the legal basis for certain tariffs, with courts holding that IEEPA did not authorize the President to impose them. Tariff exposure is not just about what the policy is. It is also about how stable that policy is over time. And yet, deals still need to be done. So rather than resolving that uncertainty, parties are increasingly structuring around it. That is reflected in the increased use of tariff-related adjustment mechanisms in pricing, broader MAC definitions that may capture policy-driven changes, and covenants requiring the business to manage or restructure supply chains. How do parties react when tariff regimes shift? In many ways, the response is familiar. Parties reassess their position. They seek advice. They attempt to renegotiate or mediate. Only when that process breaks down do disputes move into litigation or arbitration. That dynamic is particularly visible in long-term arrangements, where parties have different incentives and time horizons. At that point, the issue is not just what the contract says. It is whether the parties can absorb a changed economic reality. American Arbitration Association-International Centre for Dispute Resolution® (ICDR) #ResolveForBetter #Arbitrate #Mediate

This January Franchise Times article by Laura Michaels draws strong attention to the impact of interest rates on franchise development. In the recent BoeFly, Inc. survey of  franchisors, they are "increasingly worried about the impacts of rising interest rates and are less confident they’ll meet growth goal." The chart below outlines the findings. A few thoughts on this: ▶ These findings demonstrate that service brands or lower investment brands have the potential for significant upside while capital intensive ones will bear the brunt of this impact. ▶ Resales of existing units which have already been fully capitalized, paid for and are now selling on a multiple of earnings will be increasingly attractive to those in the market. The "buy it versus build it" trend we wrote about in our book, Appetite for Acquisition is real. ▶ Existing "second-generation" space available to conversion has been on fire since the pandemic and will also be fueled by these interest rate trends. Remember, these rates have also caused developers to slow their start on shopping centers. We're heading toward a real estate crunch. ▶ Those in capital intensive spaces, like restaurants, are beginning to look at ways to diversify their holdings. Rather than expanding outside the space you know, why not consider an adjacent opportunity like the We Sell Restaurants brand? It's the restaurant business with banker's hours PLUS low cost of entry and excellent return. Thoughts, franchise community? Key takeaways from article which surveyed around 700 executives:: ➡ Only 50% of the C-level executives surveyed are confident of meeting growth goals, down from 76.9% in April. ➡ Majority of franchisors (86.7%) reported that current interest rates are negatively impacting their growth plans. Link to the article in the comments. #WeSellRestaurants #Restaurantbusiness #restaurantindustry