D1 Sports
Fitness
Founded 2014129 locationsCompany Profile
Year Founded:2014
D1 Sports Franchise Cost
| Franchise Fee: | $59,500Key Metric |
| Total Investment: | $475,000 - $907,000Key Metric |
| Liquid Capital: | $117,500 |
| Royalty Fee: | 7% of gross sales |
| Marketing Fee: | Not specified |
Quick ROI Calculator
Based on D1 Sports's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:129
Scale relative to 1,000 locations
Franchised Units:127
Corporate Units:2
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AI-Powered Due Diligence Analysis
Our advanced AI analyzes Franchise Disclosure Documents (FDDs) to identify potential risks and opportunities across 10 critical categories.
13
High Risk
Critical items
41% of total
16
Medium Risk
Monitor closely
50% of total
3
Low Risk
Manageable items
9% of total
32
Total Items
Factors analyzed
9 categories
6.56
Overall Score
Low RiskHigh Risk
010
Disclosure & Representation Risks
3 risks identified
2
1
Misleading or Incomplete Disclosure
High
Explanation:
- The FDD provides limited information in Item 23, primarily focusing on acknowledging receipt of the document. The attached exhibits, while listing state regulators, don't offer substantive details about the franchise offering itself. This lack of comprehensive information in key areas like financials, operational details, and franchisee obligations creates a risk of misunderstanding or misrepresentation.
- Exhibit A only lists state regulators, which is standard, but doesn't guarantee registration or approval in those states. A prospective franchisee might misinterpret the listing as an endorsement or approval.
- The truncated Exhibit B (Franchise Agreement) Table of Contents highlights numerous clauses that require careful scrutiny, but without the full text, it's impossible to assess the specific risks associated with each clause. This lack of transparency can hide unfavorable terms.
Potential Mitigations:
- Carefully review the ENTIRE FDD, not just the provided excerpts. Request missing information or clarifications from the franchisor.
- Independently verify the franchisor's registration status in your state with the relevant regulatory agency listed in Exhibit A.
- Consult with a franchise attorney and financial advisor to analyze the complete FDD and Franchise Agreement before signing any documents.
FDD Citations:
- Item 23: "Exhibit J contains detachable documents acknowledging your receipt of this Disclosure Document."
- Exhibit A: Entire exhibit listing state regulators.
- Exhibit B: Table of Contents of the Franchise Agreement.
Unfavorable Franchise Agreement Terms
High
Explanation:
- The partial Table of Contents of the Franchise Agreement reveals clauses related to termination, non-compete, transfer restrictions, and dispute resolution, all of which could contain provisions detrimental to the franchisee. Without the full text, it's impossible to assess the fairness and reasonableness of these clauses.
- Clauses like "Our Right to Purchase Your Business" and "Liquidated Damages" raise concerns about the franchisor's potential power over the franchisee's investment.
Potential Mitigations:
- Obtain and thoroughly review the complete Franchise Agreement with legal counsel. Pay close attention to clauses related to termination, non-compete, transfer restrictions, royalties, fees, and dispute resolution.
- Negotiate more favorable terms where possible. An experienced franchise attorney can assist in this process.
- Compare the agreement to industry standards and other franchise agreements to identify any unusually restrictive or unfair provisions.
FDD Citations:
- Exhibit B - Franchise Agreement: Table of Contents entries for Termination, Covenant Not to Compete, Our Right to Purchase Your Business, Liquidated Damages.
Limited Information on Financial Performance
Medium
Explanation:
- The provided excerpts lack any information about the financial performance of existing D1 Sports franchises. This makes it difficult to assess the potential profitability and return on investment.
Potential Mitigations:
- Request Item 19 of the FDD, which typically contains financial performance representations (if any are provided).
- If Item 19 is not available or doesn't provide sufficient information, conduct independent market research and speak with existing franchisees to gauge potential earnings.
- Develop realistic financial projections based on your own market analysis and business plan.
FDD Citations:
- N/A - Financial performance information is missing from the provided excerpts.
Financial & Fee Risks
6 risks identified
2
3
1
Franchisor Financial Instability (Maryland)
High
Explanation:
- The FDD discloses that the franchisor has secured a surety bond of $344,500 to demonstrate financial capability to meet pre-opening obligations. This is a direct indication of potential financial instability and raises concerns about the franchisor's ability to support franchisees adequately.
- The requirement for a surety bond was imposed by the Maryland Division of Securities due to the franchisor's financial status, further highlighting the financial risk.
Potential Mitigations:
- Carefully review the franchisor's financial statements and discuss their financial health with a financial advisor.
- Inquire about the specific reasons for the surety bond requirement and assess the long-term financial viability of the franchisor.
- Consider negotiating stronger guarantees or protections in the franchise agreement related to the franchisor's performance of its obligations.
FDD Citations:
- Item 19, Maryland Addendum: "Due to our financial condition, please be advised that we have secured a surety bond...This financial assurance requirement was imposed by the Maryland Division of Securities due to Franchisor’s financial status."
Limited Operating History
Medium
Explanation:
- D1 Sports was founded in 2014, indicating a relatively limited operating history in the franchising industry. This poses a risk as there is less established track record to assess the franchisor's long-term success and support system.
Potential Mitigations:
- Thoroughly research the franchisor's history, growth trajectory, and management team's experience.
- Speak with existing franchisees to understand their experiences and assess the level of support provided by the franchisor.
- Seek legal and financial advice to evaluate the risks associated with a relatively new franchisor.
FDD Citations:
- Franchise Context: "Founded: 2014"
State-Specific Regulations and Restrictions
Medium
Explanation:
- The FDD highlights specific regulations in various states, such as Minnesota and Maryland, that impact franchise operations and agreements. These regulations can create complexities and limitations for franchisees.
- Examples include limitations on NSF check fees in Minnesota and restrictions on waivers and releases in Maryland.
Potential Mitigations:
- Carefully review the state-specific addenda in the FDD to understand the applicable regulations in your target market.
- Consult with legal counsel specializing in franchise law to ensure compliance with state-specific requirements.
- Factor in the potential impact of these regulations on your business operations and profitability.
FDD Citations:
- Item 6: "Minnesota Statute 604.113 provides that the maximum amount you can be charged for an NSF check is $30.00."
- Item 19: Maryland Addendum (various sections related to waivers, releases, and legal claims).
Potential for Disputes and Litigation (Maryland, Michigan)
Medium
Explanation:
- The Maryland and Michigan addenda address specific legal claims and dispute resolution processes, suggesting a potential for conflicts between franchisees and the franchisor.
- The Maryland addendum clarifies franchisee rights regarding legal claims under Maryland law, while the Michigan addendum voids certain provisions that could limit franchisee rights.
Potential Mitigations:
- Carefully review the dispute resolution mechanisms outlined in the franchise agreement.
- Consult with legal counsel to understand your rights and obligations in case of disputes.
- Communicate openly with the franchisor to address any concerns proactively.
FDD Citations:
- Item 19, Maryland Addendum (various sections related to legal claims and dispute resolution).
- Item 19, Michigan Addendum (various sections related to void provisions and franchisee rights).
Deferred Initial Franchise Fee Payment (Virginia)
Low
Explanation:
- In Virginia, the initial franchise fee and other initial payments are deferred until the franchisor completes its pre-opening obligations. While this protects the franchisee, it could also indicate potential delays or issues in the franchisor fulfilling its responsibilities.
Potential Mitigations:
- Confirm the specific pre-opening obligations of the franchisor and establish clear timelines for completion.
- Include provisions in the franchise agreement that address potential delays and remedies for non-performance.
FDD Citations:
- Item 5 (Additional Disclosure): "The Virginia State Corporation Commission’s...requires us to defer payment of the initial franchise fee...until the franchisor has completed its pre-opening obligations."
High Investment Costs
High
Explanation:
- The investment range of $475,000 to $907,000 represents a significant financial commitment. This high initial investment increases the financial risk for franchisees, especially if the business does not perform as expected.
Potential Mitigations:
- Develop a comprehensive business plan with realistic financial projections.
- Secure adequate financing and explore various funding options.
- Carefully evaluate the potential return on investment and assess the market demand for the franchise's services.
FDD Citations:
- Franchise Context: "Investment Range: $475,000 - $907,000"
Legal & Contract Risks
5 risks identified
1
3
1
Inconsistency between Franchise Agreement and Wisconsin Fair Dealership Law
High
Explanation:
- The Wisconsin Addendum states that the Wisconsin Fair Dealership Law (WFDL) supersedes any conflicting provisions in the Franchise Agreement. This creates a risk for franchisees in Wisconsin, as the WFDL provides significant protections that may not be explicitly outlined in the Franchise Agreement itself. Misunderstanding this interplay could lead to disputes and unexpected outcomes for franchisees.
- The WFDL grants dealers, including franchisees, substantial rights regarding termination, non-renewal, and other changes to the dealership relationship. These rights can be more stringent than those typically found in franchise agreements.
Potential Mitigations:
- Carefully review the WFDL and consult with an attorney specializing in Wisconsin franchise law to fully understand its implications and how it interacts with the Franchise Agreement.
- Request clarification from the franchisor regarding any potential conflicts between the Franchise Agreement and the WFDL, and document these clarifications in writing.
- Negotiate specific provisions in the Franchise Agreement to address any concerns arising from the interplay with the WFDL, ensuring alignment with the law's requirements.
FDD Citations:
- Item 17, Exhibit H - Wisconsin Addendum: "Ch. 135, Stats., the Wisconsin Fair Dealership Law, supersedes any provisions of this Agreement or a related document between Franchisor and Franchisee inconsistent with the Law."
Variations in State Franchise Laws and Regulations
Medium
Explanation:
- The FDD mentions various state registrations and filings, indicating that franchise laws vary by state. This creates complexity and potential legal risks, as franchisees must comply with specific regulations in their respective states. Failure to comply with these varying regulations can lead to penalties and legal challenges.
- The FDD notes that some states have pending registrations, which introduces uncertainty about the legal framework applicable to franchisees in those states.
Potential Mitigations:
- Consult with legal counsel specializing in franchise law in the specific state of operation to ensure full compliance with all applicable state regulations.
- Review the specific state addenda and riders (Exhibit H) to understand the variations and implications for the franchise relationship in each state.
- Stay informed about changes in state franchise laws and regulations, as these can impact the franchise agreement and operations.
FDD Citations:
- Item 17, Exhibit I - State Effective Dates: Lists various states and their effective dates, some of which are "Pending Registration."
- Item 17, Exhibit I: "Other states may require registration, filing, or exemption of a franchise under other laws, such as those that regulate the offer and sale of business opportunities or seller-assisted marketing plans."
Enforceability of the Franchise Agreement and Related Contracts
Medium
Explanation:
- Item 22 lists the contracts attached as exhibits, including the Franchise Agreement, Area Development Agreement, and a Sample General Release. The enforceability of these contracts is crucial for both the franchisor and franchisee. Unclear or ambiguous language, or provisions that violate applicable laws, could render parts or all of the agreements unenforceable.
Potential Mitigations:
- Have an experienced franchise attorney thoroughly review all contracts before signing to ensure they are legally sound and protect the franchisee's interests.
- Seek clarification from the franchisor on any ambiguous or concerning clauses in the contracts and document these clarifications in writing.
- Negotiate any necessary modifications to the contracts to address specific concerns and ensure clarity and enforceability.
FDD Citations:
- Item 22 - Contracts: Lists the contracts attached as exhibits, including "Exhibit B – Franchise Agreement," "Exhibit C – Area Development Agreement," and "Exhibit F – Sample General Release."
Potential for Disputes Related to State-Specific Addenda and Riders
Medium
Explanation:
- The existence of State Addenda and Agreement Riders (Exhibit H) highlights the potential for disputes arising from the application of these state-specific modifications to the Franchise Agreement. Inconsistencies or ambiguities between the main agreement and the riders could lead to disagreements and legal challenges.
Potential Mitigations:
- Carefully review the State Addenda and Agreement Riders relevant to the franchisee's location and compare them with the main Franchise Agreement to identify any potential conflicts or ambiguities.
- Discuss any concerns with the franchisor and seek legal advice to ensure a clear understanding of the implications of the state-specific modifications.
- Document any agreed-upon interpretations or clarifications regarding the addenda and riders in writing.
FDD Citations:
- Item 22 - Contracts: References "Exhibit H – State Addenda and Agreement Riders."
- Item 17: Discusses state-specific requirements and includes Exhibit H.
Compliance with Pre-Signing Disclosure Requirements
Low
Explanation:
- Item J emphasizes the legal requirement for the franchisor to provide the FDD a certain number of days before signing any agreement or making a payment. Failure by the franchisor to comply with these pre-signing disclosure requirements can invalidate the agreement and expose the franchisor to legal action.
- The receipt mentions different timelines for different states, adding complexity to compliance.
Potential Mitigations:
- Verify receipt of the FDD and ensure it is received within the legally mandated timeframe before signing any agreement or making any payment.
- Document the date of receipt and retain a copy of the signed receipt as proof of compliance.
- Be aware of the specific disclosure timelines applicable in the franchisee's state.
FDD Citations:
- Item J - Receipts: Includes language about required delivery timelines and potential legal violations for non-compliance.
- Item J - Receipts: Specifies different timelines for Iowa, Michigan, and New York.
Territory & Competition Risks
3 risks identified
2
1
No Exclusive Territory
High
Explanation:
- The FDD explicitly states that franchisees are not granted exclusive territories. This means multiple D1 facilities can operate in close proximity, potentially leading to direct competition and market saturation.
- This is further emphasized by the allowance of overlapping Designated Territories and Site Selection Areas, increasing the likelihood of intra-brand competition.
Potential Mitigations:
- Carefully evaluate the proposed Designated Territory's demographics, competition, and potential for growth. Ensure it can support multiple D1 facilities without significant cannibalization.
- Thoroughly research existing and planned D1 facilities in the surrounding areas to understand the competitive landscape.
- Negotiate with the franchisor for a larger or more strategically advantageous Designated Territory, although the FDD suggests limited flexibility.
FDD Citations:
- Item 12: "You will not receive an exclusive territory. You may face competition from other franchisees..."
- Item 12: "While some portions of designated Territories granted in connection with D1 Training Facilities may overlap..."
Competition from Affiliated Businesses
High
Explanation:
- The franchisor and its affiliates retain the right to operate competing fitness centers and other businesses, even within the franchisee's Designated Territory, under different brands.
- This poses a significant risk as the franchisor could potentially divert customers to their own affiliated businesses, impacting the franchisee's revenue.
Potential Mitigations:
- Request clarification from the franchisor regarding their plans for developing competing businesses in the area.
- Negotiate for restrictions on the franchisor's ability to operate competing businesses within a certain radius of the franchisee's location, though the FDD suggests this may be difficult.
- Focus on differentiating the D1 franchise through superior customer service, local marketing, and community engagement.
FDD Citations:
- Item 12: "We and our affiliates also have the right to operate, and grant franchises or licenses to others to locate, fitness centers and other businesses offering similar services in your Territory under trademarks other than the Proprietary Marks."
Overlapping Site Selection Areas and Designated Territories
Medium
Explanation:
- The FDD indicates that Site Selection Areas and Designated Territories may overlap, creating ambiguity and potential conflict during the site selection process.
- This overlap could lead to competition between franchisees even before their Designated Territories are finalized.
Potential Mitigations:
- Clearly define the Site Selection Area in the Franchise Agreement and ensure a thorough understanding of its boundaries and potential overlap with other franchisees' areas.
- Communicate proactively with the franchisor and other franchisees during the site selection process to avoid conflicts and ensure a fair and transparent process.
FDD Citations:
- Item 12: "While some portions of designated Territories granted in connection with D1 Training Facilities may overlap..."
- Item 12: "...your Site Selection Area and Designated Territory may overlap with the Site Selection Area or Designated Territory of another franchisee."
Regulatory & Compliance Risks
1 risk identified
1
Limited History and Lack of Bankruptcy Disclosure Beyond 10 Years
Medium
Explanation:
- The FDD only provides bankruptcy information for the past 10 years. D1 Sports was founded in 2014, meaning the disclosure effectively covers its entire operational history. However, this relatively short history provides a limited view of the franchisor's financial stability and resilience through economic cycles.
- There's no information about any potential bankruptcy issues prior to the 10-year period covered, which could be relevant if key personnel or affiliated entities have a history of financial distress.
Potential Mitigations:
- Independent Financial Analysis: Conduct thorough due diligence, including reviewing D1 Sports' financial statements beyond the information provided in the FDD. Seek advice from a financial advisor to assess the franchisor's long-term financial health.
- Background Checks: Research the background of key executives and affiliated entities to identify any potential past financial difficulties not disclosed in the FDD.
- Industry Research: Analyze the fitness industry's historical performance during economic downturns to understand potential vulnerabilities and assess D1 Sports' resilience in challenging market conditions.
FDD Citations:
- Item 4: "During the 10-year period immediately before the issuance date of this disclosure document..."
Franchisor Support Risks
3 risks identified
2
1
Brand Fund Management and Allocation
High
Explanation:
- Franchisor has complete control over Brand Fund spending, with no guarantee of proportional benefit to franchisees. Expenditures may not be focused on areas generating the most contributions.
- Franchisor and affiliates can reimburse themselves for salaries, benefits, and overhead from the Brand Fund, potentially creating a conflict of interest.
- Lack of transparency and independent oversight of Brand Fund financials raises concerns about potential misuse of funds.
Potential Mitigations:
- Request detailed annual audited financial statements of the Brand Fund, including a breakdown of expenditures by category and geographic area.
- Negotiate for greater franchisee representation and voting rights in Brand Fund decision-making.
- Seek clarification on the criteria used for allocating Brand Fund resources and ensure alignment with franchisee interests.
FDD Citations:
- Item 11: "We or our designees will direct all programs and activities of the Brand Fund..."
- Item 11: "We may reimburse ourselves or pay our affiliates...from the Brand Fund..."
- Item 7, Item 11: "We will provide unaudited financial statements of the Brand Fund upon reasonable request."
Mandatory Local Advertising Spending Requirement
Medium
Explanation:
- High minimum daily advertising spend ($100, subject to annual increases) could strain franchisee budgets, especially during initial ramp-up or slow periods.
- Franchisor's ability to increase this requirement based on marketing cost per mille without a cap creates uncertainty and potential financial burden.
Potential Mitigations:
- Negotiate a lower initial advertising spend requirement or a performance-based adjustment mechanism.
- Request detailed justification for any proposed increases to the minimum spend, including data on marketing ROI.
- Explore cooperative advertising opportunities with other franchisees to leverage economies of scale.
FDD Citations:
- Item 11: "You must meet the minimum monthly spending requirement we impose (currently, $100 per day, subject to increase...)"
Limited Post-Opening Support for Area Developers
High
Explanation:
- The FDD states no obligation to provide assistance to Area Developers after operations begin, potentially leaving them without crucial support during expansion.
Potential Mitigations:
- Negotiate for specific post-opening support provisions in the Area Development Agreement, including training, marketing, and operational guidance.
- Clearly define the roles and responsibilities of both parties during the development phase and beyond.
FDD Citations:
- Item 11: "We are not obligated to provide any assistance to your Business once in operations under the Area Development Agreement."
Exit & Transfer Risks
2 risks identified
1
1
Wisconsin Fair Dealership Law Restrictions on Transfer
High
Explanation:
- The Wisconsin Fair Dealership Law (WFDL) significantly restricts the franchisor's ability to terminate or refuse to renew a franchise agreement, potentially making it more difficult for a franchisee to sell or transfer their franchise. The WFDL creates a "dealership" relationship that provides substantial protections to the franchisee.
- This can impact the resale value and marketability of the franchise, as potential buyers may be hesitant to invest in a franchise where their future operations are subject to the constraints of the WFDL and the franchisor's limited ability to enforce contract terms.
Potential Mitigations:
- Carefully review the Wisconsin Fair Dealership Law and understand its implications for franchise transfers.
- Consult with legal counsel specializing in franchise law and the WFDL to assess the specific risks and potential limitations on transfer options.
- Factor the potential impact of the WFDL on resale value into your initial investment decision.
- Negotiate with the franchisor to address potential transfer issues upfront, although the WFDL may limit their flexibility.
FDD Citations:
- Item 17: "For Wisconsin Franchisees, ch. 135, Stats., the Wisconsin Fair Dealership Law, supersedes any provisions of the Franchise Agreement or a related contract between Franchisor and Franchisee inconsistent with the Law."
- Item 17, Wisconsin Addendum: "Ch. 135, Stats., the Wisconsin Fair Dealership Law, supersedes any provisions of this Agreement or a related document between Franchisor and Franchisee inconsistent with the Law."
Limited Transfer Options Due to State Regulations
Medium
Explanation:
- The FDD mentions several states with specific franchise registration and disclosure laws (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin). These laws can vary significantly and may impact the ease and process of transferring a franchise.
- Some states may require additional disclosures or approvals for franchise transfers, adding complexity and potentially delaying the process. This can create uncertainty and potentially deter buyers.
Potential Mitigations:
- Review the specific franchise laws in the state where the franchise is located to understand any transfer-related requirements.
- Consult with legal counsel specializing in franchise law in the relevant state(s) to ensure compliance with all applicable regulations.
- Factor potential delays and costs associated with state-specific transfer requirements into your exit strategy.
FDD Citations:
- Item 17, Exhibit I: "The following states require that the Disclosure Document be registered or filed with the state, or be exempt from registration: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin."
- Item 17, Exhibit I: "Other states may require registration, filing, or exemption of a franchise under other laws, such as those that regulate the offer and sale of business opportunities or seller-assisted marketing plans."
Operational & Brand Risks
3 risks identified
1
2
Brand Fund Management and Allocation
High
Explanation:
- Franchisor has complete control over the Brand Fund, including spending and allocation decisions. There's no guarantee that funds will be used effectively or equitably across all franchise locations.
- The FDD states that expenditures may not be proportionate to contributions from a specific geographic area. This could lead to situations where franchisees feel their contributions are not benefiting their local market.
- Franchisor can reimburse itself and affiliates for administrative costs, salaries, and other expenses from the Brand Fund, potentially creating a conflict of interest.
Potential Mitigations:
- Carefully review the Brand Fund's historical expenditures and request a detailed breakdown of planned future spending.
- Inquire about the franchisor's process for determining marketing strategies and allocation of resources. Seek examples of successful campaigns in similar markets.
- Communicate regularly with the franchisor and other franchisees about local marketing needs and the effectiveness of Brand Fund initiatives.
FDD Citations:
- Item 7: "We will establish and operate a Brand Fund (defined in Item 11)"
- Item 11: "We or our designees will direct all programs and activities of the Brand Fund..." "We may reimburse ourselves or pay our affiliates...from the Brand Fund..." "We need not ensure that the Brand Fund’s expenditures...are proportionate...to Brand Fund’s contributions by D1 Training Facilities operating in that geographic area..."
Mandatory Local Advertising Spend
Medium
Explanation:
- Franchisees are required to spend a minimum of $100 per day on local advertising, which can increase by 10-20% annually. This fixed cost can be burdensome, especially during slow periods or in competitive markets.
- The increasing cost tied to marketing cost per mille makes budgeting unpredictable and could significantly impact profitability.
Potential Mitigations:
- Develop a detailed marketing budget that accounts for the minimum spend and potential increases. Explore cost-effective local advertising strategies.
- Negotiate with the franchisor for flexibility in the local advertising requirements, especially during the initial stages of operation.
- Collaborate with other franchisees to share best practices and explore joint marketing opportunities.
FDD Citations:
- Item 11: "You must meet the minimum monthly spending requirement we impose (currently, $100 per day, subject to increase in direct response to marketing cost per mille which can increase 10-20% per year)..."
Local Advertising Cooperative Obligation
Medium
Explanation:
- Franchisor reserves the right to establish local advertising cooperatives and mandate participation, with contributions up to 1.5% of gross sales (or higher with cooperative approval). This adds another layer of marketing expense with limited franchisee control.
- While the franchisor states they will approve marketing programs and materials, the actual effectiveness of cooperative spending is uncertain.
Potential Mitigations:
- Request details about the structure and operation of any existing or planned cooperatives. Understand the decision-making process and how funds are allocated.
- Assess the potential benefits of cooperative advertising in your target market. Consider the potential for overlap and wasted resources.
- If participating in a cooperative, actively engage in its activities and advocate for effective local marketing strategies.
FDD Citations:
- Item 11: "We reserve the right to establish and require you to participate in a local advertising cooperative...You must contribute your share to the cooperative which will not exceed 1.5% of your Gross Sales..."
Performance & ROI Risks
6 risks identified
2
3
1
Franchisor Financial Instability
High
Explanation:
- The FDD reveals that D1 Sports has secured surety bonds in Maryland ($344,500) and Minnesota ($60,000) to demonstrate financial capability to meet pre-opening obligations. This requirement, imposed by state regulators due to the franchisor's financial status, strongly suggests financial instability and raises concerns about the franchisor's long-term viability and ability to support franchisees.
- This financial weakness could impact the franchisor's ability to provide ongoing support, marketing, and other resources crucial for franchisee success.
Potential Mitigations:
- Request audited financial statements from D1 Sports for the past three years to thoroughly assess their financial health. Consult with a financial advisor to analyze these statements.
- Inquire about the specific reasons for the surety bond requirement with the Maryland and Minnesota regulatory bodies. Understand the nature and extent of the franchisor's financial challenges.
- Negotiate stronger guarantees in the franchise agreement regarding the franchisor's obligations and support, especially during the crucial pre-opening phase.
FDD Citations:
- Item 19, Maryland Addendum: "Due to our financial condition, please be advised that we have secured a surety bond...This financial assurance requirement was imposed by the Maryland Division of Securities due to Franchisor’s financial status."
- Item 19, Minnesota Addendum: "Please be advised that we have secured a surety bond...This financial assurance requirement was imposed by the Minnesota Department of Commerce due to Franchisor’s financial status."
Rapid Growth and Potential Overexpansion
Medium
Explanation:
- Item 20, Table 1 shows significant growth in the number of franchised units, with a net increase of 16 in 2022, 11 in 2023, and a projected 37 in 2024. Such rapid expansion can strain the franchisor's resources and potentially lead to inadequate support for franchisees, increased competition among franchisees, and difficulty maintaining quality control.
Potential Mitigations:
- Carefully analyze the franchisor's plans for managing this rapid growth. Inquire about their training programs, support infrastructure, and quality control measures.
- Investigate the market saturation in your target territory. A high concentration of D1 Sports facilities could lead to intense competition and reduced profitability.
- Speak with existing franchisees about their experiences with the franchisor's support and the level of competition they face.
FDD Citations:
- Item 20, Table 1: "Systemwide Outlet Summary" showing significant increases in franchise outlets.
Limited Operating History
Medium
Explanation:
- D1 Sports was founded in 2014. A relatively short operating history compared to more established fitness franchises presents a risk. There's less data available to assess the long-term viability of the business model, the effectiveness of the franchisor's support, and the brand's resilience to economic downturns.
Potential Mitigations:
- Thoroughly research the background and experience of the franchisor's management team. Look for evidence of successful business ventures and relevant industry expertise.
- Speak with as many existing franchisees as possible to gain insights into their experiences and the challenges they have faced.
- Seek professional advice from a franchise consultant and legal counsel experienced in evaluating franchise opportunities.
FDD Citations:
- Franchise Context: "Founded: 2014"
Competition in the Fitness Industry
Medium
Explanation:
- The fitness industry is highly competitive, with numerous established brands and emerging concepts. This competition can impact market share, pricing strategies, and profitability. D1 Sports must differentiate itself effectively to attract and retain customers.
Potential Mitigations:
- Carefully analyze the competitive landscape in your target market. Identify the strengths and weaknesses of competitors and assess D1 Sports' competitive advantages.
- Develop a strong local marketing plan to build brand awareness and attract customers.
- Focus on providing excellent customer service and building a loyal customer base.
FDD Citations:
- This is a general business risk implied by the nature of the fitness industry.
Dependence on Key Personnel
Low
Explanation:
- The success of a franchise system can be heavily reliant on the expertise and leadership of key personnel within the franchisor's organization. The departure of key individuals could negatively impact the franchisor's ability to support franchisees and execute its business strategy.
Potential Mitigations:
- Inquire about the franchisor's succession planning and the depth of experience within the management team.
- Assess the franchisor's training programs and documentation to ensure that knowledge and expertise are effectively disseminated throughout the organization.
FDD Citations:
- This is a general franchise risk not explicitly mentioned in the provided FDD excerpt.
Potential for Litigation with Franchisees (Maryland Specific)
High
Explanation:
- The Maryland Addendum repeatedly emphasizes the franchisee's right to sue under Maryland Franchise Registration and Disclosure Law, and explicitly overrides any clauses in the Franchise Agreement that might limit this right. This suggests a history or potential for legal disputes between the franchisor and franchisees in Maryland, which could be a red flag for potential franchisees in any state.
- While protecting franchisee rights, this emphasis on litigation possibilities indicates potential friction and a less collaborative relationship between the franchisor and franchisees.
Potential Mitigations:
- Consult with a franchise attorney specializing in Maryland law to understand the implications of this addendum and the history of franchise-related litigation in Maryland involving D1 Sports.
- Speak with existing franchisees, particularly those in Maryland, about their relationship with the franchisor and any legal issues they have encountered.
- Carefully review the entire Franchise Agreement, paying close attention to dispute resolution clauses and any provisions related to legal action.
FDD Citations:
- Item 19, Maryland Addendum: Multiple sections address the franchisee's right to sue under Maryland law, including sections 1, 2, 3, and 4.
FDD Documents by Year
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FDD Year: 2025
Uploaded: 8/8/2025
FDD Documents
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